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MarketSmith powers the charts in this video.

Will we see a big move at the beginning of the new year that will continue the trend of 2023 or will we see a quick shakeout to reduce the overly bullish sentiment? Both scenarios are equally possible. Both would offer great trading opportunities for the nimble. 

A gap-and-go opening of the New Year will stir the speculative juices and lead to big moves in small and micro caps. Historically, small caps outperform significantly in the first three weeks of a new year. There are quite a few mid and large-cap stocks that are also potentially setting up for a breakout – NVDA, MSFT, WDAY, FOUR, SNOW, IOT, etc.

Many are super bullish on the first two-three weeks of the year but I don’t exclude a possible shakeout to keep the entreme exuberance in check. A quick pullback can offer much better risk-to-reward setups. Dip buyers are waiting behind every corner. They tend to do well in a bullish market environment because most stocks make higher lows and higher highs. The ones that get smoked during uptrends are the chasers who blindly leverage themselves in super-extended stocks. 

I wish you a wonderful New Year full of joy and happiness. Knowledge and habits compound, both good and bad habits. As to trading, the next year should always be your best in terms of execution because if you are doing things right, you are becoming an incrementally better trader or investor every year.

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MarketSmith powers the charts in this video.

Everything seems so idyllic in financial markets right now. Inflation is coming down and with it interest rates. The US Dollar is pulling back. The Nasdaq 100 and the S&P 500 are at all-time highs. Small caps are starting to outperform. The speculative areas of the market are running wild. Anything crypto-related has been on fire and accelerating. Biotech and cannabis stocks are also starting to wake up. The last week of the year will probably be more of the same. Smaller cap, highly-shorted stocks making moves and outperforming.

In markets, long periods of stability lead to complacency, which brings instability. We saw a glimpse of it last Wednesday when all of a sudden the entire stock market sold off for no apparent reason. Typically such quick one-day drops don’t mark the top as we saw recently but they often serve as a wake-up call to many. Maybe, chasing is not going to be as mindless as before. I doubt it. That pullback lasted a couple of hours and most stocks fully recovered in the next two days. Everyone is giddy and getting ready for some of the craziest times for trading – the first three weeks of the new year. 

My message remains the same. Don’t chase blindly overextended stocks and always consider the risk involved first before you open a new trade. Every single trade involves risk, no matter the market environment.

Merry Christmas and Happy Holidays!

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSmith powers the charts in this video.

Don’t fight the Fed, don’t fight the tape is an old trader’s saying that rings true now more than ever. It was coined in 1970 by a famed investor Martin Zweig to explain the strong correlation between Federal Reserve policy and the direction of the stock market. In his book “Winning on Wall Street’, he writes “The monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction”. 

The Fed started this rally on November 1 by signaling an end to its rate hike cycle. The Fed added fuel to the fire last week by projecting 0.75bps rate cuts in 2024 and more in 2025 and 2026. Since early November, the S&P 500 is up seven weeks in a row – something not seen since 2017. The small-cap index, Russell 2k went from a 52-week low to a 52-week high in a record 33 days. The Nasdaq Composite is basically at all-time highs after being down 33% in 2022.

What’s next? Many stocks seem quite extended at the time and can use some form of consolidation to offer better risk-to-reward entries. This doesn’t necessarily mean that a break will happen if everyone is expecting it. It’ll happen if enough people decide to take profits or short and their supply overwhelms the demand of other market participants. The market is getting ready to celebrate new all-time highs before the end of the year, if even for a day. Small caps tend to outperform at the end and the beginning of the year, so the next few weeks might offer some intriguing opportunities in select highly-shorted stocks.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.