Wednesday’s price action was solid on the back of heavier trading volume. Out of the gate the market was holding up well, but it wasn’t until Fed Chair Powell spoke regarding where he thought interests rates were did the market begin its march higher. Buyers flooded the market pushing stocks higher for the entire afternoon. Volume was higher across the board from Tuesday’s level. Coupled with price gains we are now in a confirmed market rally. Over the next few days it will be of great importance we avoid any distribution for this rally to last. The market certainly favors rates holding steady rather than continuing to see rates march higher. We are a few weeks away from the next FOMC meeting and it will be interesting to see how odds change given Powell’s statement. A confirmed market rally is only as good as its leadership and we will soon find out the validity of this rally.
There are quite a few long positions for today’s market open. This is very typical for a follow-through day and it is expected. The key is not to fear the long-side, but contain potential loss through proper position sizing and knowing where your exits are. Contain losses over the long-term while riding huge winners is the optimized way to extract the maximum amount of gains from the market. Our current situation here we still must remain vigilant with our position size and exit strategy. While we would love to see monster gains we are not naïve in thinking we will not have any failures. The key is to cut your losses quickly and move on.
The NASDAQ 100 was the leading gainer for the major market averages gaining 3.17% during Wednesday’s session. The group had been beaten down as many investors and traders abandoned the FAANG trade. It certainly became a crowded trade and when they unwind its never very pretty. Most are in bad shape and need to work off a lot of overhead resistance. It is likely majority of the FAANG stocks won’t be leading the charge moving forward. Some media pundit will coin a new acronym at some point, but for now our focus remains on price action.
We do see plenty of interesting price patterns emerging from this rally and we do have the Christmas season approaching. It would not surprise us to see a Santa Claus rally into year-end. Many traders are behind as well as many fund managers. While it would be great to see a year-end rally we will focus on price and our risk management process. Everything else is simply noise.
