So we returned from Thanksgiving break expecting some more selling and found stocks... going up.
Yep. The S&P 500 managed to grind out about 0.88% in gains. That's hardly a raging bull, but at least it means the selling's over with... right?
Not hardly, although Monday and Tuesday, traders were undeniably looking at the sunny side of life.
But on Monday, fully 19 of 20 "Turbo Stocks" I track for my paid-up subscribers returned short-side gains, meaning they went down.
Just one bull against 19 bears? Hamburger's on the menu, folks.
Still, these small gains on the S&P 500 can tell us something valuable...
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Why It's Too Early to Tell Whether Bulls or Bears Will Reign
If we use the SPDR S&P 500 ETF (NYSEArca: SPY) as a proxy, we see that Monday's volume was actually about 60% higher than the average, usually quiet Monday following Thanksgiving.
But that spike is nothing to bet the farm on; it doesn't give a clear (or convincing, for that matter) picture on its own about the market's health.
For instance, Monday we all got word that the European Union and United Kingdom struck a deal on their Brexit "divorce," which in turn buoyed sentiment.
Is that really good news? Well, sure, I guess, but like I said: nothing to bet the farm on.
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It could be bullish if traders are seeing this as a true buying opportunity. It may give them what they need, psychologically, to be willing to plow money into the market - regardless of the potential for downside volatility to roar back later this week.
I call this "blind bullishness." As with blind faith, you just keep plugging away, believing things will just work out.
In this case, I think, the blindly bullish have dropped their letters addressed to the North Pole in the mailbox, meaning they're hoping for the December "Santa Claus rally."
And believe it or not, this could work out for the market.
There are times when blind bullishness prevails over a concrete negative trend (and logic and reason). When this happens, traders will often have conversations with themselves that go like this...
Q: "Why's the market going up?"
A: "Dunno."
Q: "Why's the market going up?"
A: "I told you: I don't know."
Q: "No, seriously, why's the market going up?"
A: "I really don't know. Honest."
Q: "It's still going up. Why... is it doing that?"
A: "I don't know, but now that you mention it, I'm worried I'm missing out."
Q: "Okay, but for real, why's the market going up?"
A: "Holy cow! I still don't know why, but I gotta get some of this action..."
Conclusion: That's blind bullishness for you. Sometimes the market goes higher for no reason.
Of course, that particular conversation can shake out another way. It goes a little something like this...
Q: "Why's the market going up?"
A: "Because nobody is selling today."
Q: "Are you sure?"
A: "Yeah, there's nobody selling today!"
Q: Oh [bleep]! Why does the market suck again?"
A: "Because we're still in a bearish trend, and - there we go - now everyone is selling again. LOOK OUT BELOW!"
Right now, I think the market is having that second, not-so-happy chat with itself.
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Tepid gains like we saw Monday and again yesterday morning do nothing - nothing - to prove to me that stocks have the juice to steamroll over any selling pressure or headline news.
On the other hand, stocks are in a perfect position to be steamrolled should selling or unsettling headlines pop into the picture - and believe me, there's going to be plenty of both in the near future.
If you're in Night Trader and you're moving with the benefit of my Command Grid and Infrared Index, just sit tight - I'm researching a profit recommendation right now that you'll get after the close when we're ready to "infiltrate" the markets tonight.
If you're doing this yourself, I'd play it very conservatively from the long side. If you feel comfortable making one or two select bullish bets with some capital you can afford to play with, by all means go for it; we could be looking at the start of a leg up... but that's nothing to bet the farm on.
Rather, I think those traders who go a few more rounds with the bears on the short side will end up looking smart.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.