While talking with investors this week, we were surprised that so many did not think the market had a good November. In fact, this has been the second-best November performance since the 1980's.
So why do so many traders feel bad about the market in November?
If that dissonance sounds familiar to you, it's normal. First, most of the gains in November happened during the first two weeks. Since the day before the Thanksgiving holiday, the market has been flat. Second, daily price swings and reversals have been common, which is always frustrating.
The Good News
We think positive momentum is going to pick up again in December. In our favor is the fact that investors have had a very broad interest in stocks rather than the kind of narrow buying we saw earlier this year.
For example, the 50 stocks in the S&P 500 with the biggest November gains had an average market capitalization of $65 billion. That is less than the average for the group and about 12% of the size of the largest 50 S&P components like Apple (AAPL) and Microsoft (MSFT).
The fact that investors are buying a wide spectrum of stocks (not just the big leaders) has historically been a very good sign for gains over the subsequent 60-90 days. Investors aren't just buying stocks either; junk bonds have also seen big gains, which is also generally seen as bullish confirmation.
Looking Ahead
There's not much bad news to comment on besides the lingering problems of geopolitical risks, back-and-forth inflation numbers, and a too-talkative Fed. However, there are two specific things we recommend keeping your eye on for confirmation of a bullish breakout over the next few weeks.
The monthly labor report will be released next Friday. This usually happens on the first Friday of the month, but since today is December 1st and last week was Thanksgiving, it was pushed off a week. A positive labor report will strengthen support as long as wage inflation numbers aren't too alarming. We expect traders to be a bit skittish in the few days leading up to the labor release.
Today and Monday, the Institute for Supply Management (ISM) will release manufacturing and services sentiment data. In our experience, these reports are reliable leading indicators. We aren't worried about a negative surprise, and higher-than-expected numbers could be a catalyst for a big move to the upside.
We are optimistic about the market that will work in our favor with Predictive Alpha. All trading systems work best in a bull market, and although we expect volatility to remain high, we should get plenty of new opportunities to profit.
In the video below, we walk you through what is happening on Wall Street and how each of the new trades we will be taking in the Predictive Alpha portfolio is likely to perform. (10:44 min. watch)
Each week, we will update you on our open trades, organized by their initial "target price" date.
To be clear, these trades are straight stock buys; we will not pursue any options trades in this service.
Predictive Alpha's unique A.I. system allows it to predict, with astonishing accuracy, where a security will move over the next month (or, to be more specific, the next 21 trading days).
Because this A.I. is so sensitive and updates its predictions every single day, a predicted target price may change from one day to the next.
We watch those changes carefully and will alert you when we think an exit is optimal.
The current one-month target price for LBTYK is negative, so we are watching the trade carefully. It is normal to see this price shift from day to day as the market fluctuates. If we feel that the trade needs to be modified (or closed early) we will alert you right away.
Like the rest of the market MCW has been a bit flat since we first entered the trade. The current 21-day target is lower than it was when we entered, but it can fluctuate from day to day. For now, we recommend leaving the trade unchanged. Positive spending numbers and consumer confidence should work in our favor to break the stock out of its current range and towards our profit target.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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