Stocks continued their march north this past week as once again both the Dow Jones Industrial Average (chart) and the S&P 500 (chart) hit record highs on Thursday. Joining in on the action was the Nasdaq composite (chart) which hit a 52-week high on Thursday as well, while the small-cap Russell 2000 (chart) essentially closed flat on the week. We will talk more about this index in a bit.
With the mid-term elections in the rear view mirror and as the Thanksgiving holiday approaches, I do not see any reason as to why stocks in general won’t continue to post gains. Third quarter earnings reporting season for the most part has ended, and the scorecard was okay. You might look at the technical’s in the marketplace and see that we are at or heading into overbought territory. But when you have volatility coming in, the Thanksgiving holiday fast approaching and with no other real catalyst in the near term, it’s a perfect set-up for the status quo to remain in place. Here is the one exception; the small-cap Russell 2000 (chart). As the aforementioned key indexes have made all time highs, the Russell 2000 is lagging. Yes, this index too has rallied over 10% since the selloff in October, however, the Russell is running into significant resistance at the 1200 level, and actually has reversed course over the past two trading sessions (chart). It’s a bit early to call it a true reversal or a tell, but I will be keeping a close eye on how this key barometer pertaining to overall market sentiment will perform between now and year-end.
As far as the overbought conditions we find ourselves in according to the relative strength index, also known as the RSI, this is a prototypical environment where volatility is coming down and with not too many catalysts in the near term, I would not be surprised if we remain overbought through the end of the year. Good luck to all and both Paula and I wish everyone a Happy Thanksgiving holiday.
Have a great week 🙂
~George