Well, we got off to a great start to December in the stock market with a better than 1% rally in the S&P 500 and Nasdaq indices, but we have to admit that it came on lower volume than we had on Monday’s decline...and breadth that was quite mediocre. Monday is usually the lowest volume day of a week, so the fact that it fell yesterday when the market was rising is a bit disappointing. As for the breadth, it was just 3 to 1 positive on the S&P...and just barely positive on the Nasdaq...which is somewhat disappointing as well.
Don’t get us wrong, these are not major disappointments. The stock market has obviously had a VERY nice run in recent weeks, so to experience action that is at least some-what less impressive should be seen as normal and healthy. However it does tell us that a further rise in the market is not going to be as strong as it had been in November...and it could/should be more uneven...at least for a little while. (Again...this would be normal.)
One development that WAS positive for the stock market actually came in a different market...the Treasury market. A lot of people have been worried about the fact that the stock market has been rallying on positive news on the vaccine front...which should help the economy next year...but these expectations on the economic front were not having an impact on the Treasury market........Well, that changed yesterday...as the yield on the 10-year note jumped from 0.83% to 0.93% by the close yesterday. This still left it slightly below the 0.96% high we saw in November, so we’re certainly not trying to say that yields are breaking out to the upside. However, this was a sharp one-day rise...so this move could/should help calm some of the concerns that exist in the market place right now.
(To be honest with you, we don’t see the conflict the stock and bond markets that others have been sighting. In our opinion, the main reason for this stock market rally has been Fed stimulus. They have continued to buy bonds...which has kept a lid on interest rates...and the liquidity those bond purchases have produced is going into stocks and other risk assets like Bitcoin. In other words, if you look at the recent action in the markets as one that has to do with “supply and demand”...rather than “economic growth”...the rise in the stock market while rates have stayed low makes perfect sense.)
Anyway, in yesterday’s piece, we highlighted the “ascending triangle” pattern that has formed in the S&P 500...with the top line of that pattern coming-in at the recent all-time highs for this key index. Therefore, we said, any upside follow-through would be quite bullish for the domestic stock market.....However, there are several other global stock markets that are facing a similar situation. The markets in places like Germany, the UK, South Korea and China are all testing key resistance levels. (We’d also note that Japan has already broken above its own key resistance level...and is now trading at 30 year highs!)
To be more specific, the German DAX has rallied slightly past its September highs...giving it a nice “higher-high.” (This was important because it made a “lower-low” in November, so the fact that it was able to avoid following that up with a “lower-high” is positive.) The DAX is still below its all-time highs from February, but if the break above its September highs becomes a more meaningful one, it will make a test of those old record highs soon quite likely.....As for the UK, it is bumping up against its June highs. Given all the issues surrounding Brexit, this market is still well below its February highs, but the most recent problems they’ve face did not keep their stock market from rallying in November...and if it breaks those June highs (giving it a key “higher-high”), it’s going to leave it with some room to run.
In Asia, South Korea’s KOSPI is breaking slightly above its all-time highs from early 2018. If it can see some more upside follow-through (either now or after a slight breather” to digest the most recent gains), it’s going to confirm the breakout. That, in turn, will be very bullish on a technical basis.......As for China’s Shanghai index, it is bumping up against its 2020 highs (from July)...and very close to its early 2018 highs as well. Therefore, if (repeat, IF) their market can see some more upside follow-through over the coming weeks, it’s also going to be quite bullish for this important global stock market on a technical basis as well.
(We do need to point out that Japan’s Nikkei index is getting quite overbought on a near-term basis...which is no surprise given its outperformance during the November rally. Therefore, it might have to pull-back a little bit over the short-term. In other words, any “breather” we see in Japan could be a bit longer and a bit deeper than it could be for other markets near-term.)
Our point is that as bullish as a break above the top line of the “ascending triangle” pattern on the S&P 500 would be for the U.S. stock market, there are many other opportunities in other parts of the world as well. Therefore when investors are working on how they want to adjust their portfolios for 2021, they should not be looking solely within the U.S. borders. They should be looking overseas for opportunities as well.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.