Small-Caps Continue Their Record-Breaking Streak

By Gorilla Trades. Originally published at ValueWalk.

Commenting on small-caps continuing their record-breaking streak and today’s trading Gorilla Trades strategist Ken Berman said:

Q3 2020 hedge fund letters, conferences and more

Volatility Index Continues To Drop

Holiday trading conditions were dominant on Wall Street for the second day in a row, as volatility plummeted despite the mixed political headlines. Stocks remained encouragingly stable today, while the Volatility Index (VIX) continued to drop, all but erasing Monday’s spike, which is a positive sign ahead of the holiday period.

Although volatility and trading volumes dropped once again today, even considering the last-minute drop in stocks, the divergences between the key sectors remained strong. Cyclical issues performed very well, despite their recent weakness, with energy stocks and financials gaining the most ground, and materials and industrials also pushing notably higher. Tech stocks and real estate stocks finished in the red, even as the Nasdaq hit a new record high in early trading, but the fact that the defensive utilities and healthcare sectors lagged behind too supports the bullish case for stocks.

While the long-awaited stimulus deal gave the impression that we could be in for a relatively quiet week in domestic politics, President Trump made sure that Congress will have a busy day tomorrow. After calling for a larger stimulus check of $2,000, the POTUS vetoed the recently-passed $740 billion defense bill too, going against the Republican Senate majority. While Congress will likely have enough votes to pass both defense and stimulus bills, in the case of another veto, the surprising skirmish increased uncertainty on the Street.

Small-Caps Continued Their Record-Breaking Streak

Investors have been gearing up for a no-deal Brexit this week in the wake of the downbeat weekend reports, but it seems that European Union (EU) and the U.K. are now very close to finalizing their crucial trade agreement. European assets remained on a roller-coaster today, with the Great British Pound going haywire in the illiquid environment, but a positive outcome would likely give another boost to global risk assets. The fact that small-caps continued their record-breaking streak today means that investors are still hungry for risk, so a Brexit deal could be enough to trigger a broader push to new records on Wall Street.

The economic calendar will be empty tomorrow but the holiday-shortened week already added to the short-term concerns regarding domestic growth. Today’s much worse-than-expected new home sales number led to a bearish session in the real estate sector, while consumer-related issues struggled due to the personal spending and personal income miss.

Several analysts cut their predictions for the fourth-quarter GDP, and while the new stimulus measures should kick in in January, despite the controversy surrounding the direct payments, the economy could still provide negative catalysts in the coming weeks. Stay tuned!

Headlines

• While the major indices had a very quiet session, cyclical issues bounced back following three bearish days in choppy, holiday trading
• Small-caps surge to yet another new all-time high with the Russell 2000 crossing 2,000 for the first time
• A Brexit got within reach according to today’s reports from the last-ditch negotiations
• Durable goods orders beat expectations in November, but personal spending and personal income both missed due to the weakness in the job market
• President Trump vetoed the $740 billion defense bill, forcing Congress to vote again tomorrow

Market Wrap

Advancing issues outnumbered decliners by a 3-to-1 ratio on the NYSE today, with 134 stocks hitting new 52-week highs and 2 stocks hitting new 52-week lows, while volume was well below average.

Price Action Gauge ******** (reading for 12/23: 70)

The S&P 500 broke a three-day losing streak today, as the leaders of the vaccine rally bounced back, but it’s too early to say that the overbought consolidation is over, despite the slight improvement in price action.

Oversold/Overbought Gauge ******** (reading for 12/23: 35 Color: green)

The major indices all remain in overbought territory according to the most reliable momentum indicators, while the Russell 2000 is hitting more and more extreme values due to its record-breaking rally, so more choppy trading could be ahead.

The post Small-Caps Continue Their Record-Breaking Streak appeared first on ValueWalk.

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