For the second straight day the market closed with gains. As stocks moved higher volume moved lower as traders and institutions are simply not interested in accumulating shares ahead of the Christmas holiday. Economic data was mixed with GDP coming in better than expected, but home sales slumping well below expectations. The light volume certainly does not help with conviction in the aggregate, but there are some positives we cannot look past. We must remember this market has been quite resilient since 2009 lows and there is a chance the resilience continues. Still, caution is warranted and tread carefully as we head into the final trading days of the year.
As we approach the end of this year it is always a good idea to review your trades you have made over the past year. For some, especially active traders is darn near impossible to manually review your trades. Remember, you are using hindsight where vision is always 20/20. Ask yourself basic questions like was this an emotional trade? Did I go against my strategy? Are there patterns to my mistakes? The process is much more important than outcomes. A strong process will lead to better decisions and better outcomes.
The FANG stocks continue to act well, but they are not breaking out. At some point these stocks will have to punch into new high territory to get us feeling good about this market. We need leadership and we continue to see leadership deteriorate. Sure, the Dow led market gainers as CAT tries to rebound. One look at CAT and one can see this stock has been beaten up. The global slowdown in commodities certainly hasn’t helped, but all we need to know is how price moves. At least for CAT this time volume is at least favorable.
There are always opportunities, but we must make sure risk/reward is in our favor. We must operate when we are in a power position. At the moment the market weakness does not have us in a power position making it less likely we’ll have big winners. Keep position sizes in check and an eye on proper exits. Keep your losses small and let your winners run.
