Jeff Clark's Market Minute

The Stock Market Never Makes it Easy

We’ll find out soon if the typical seasonal pattern is going to play out this year.

The days immediately before and after Thanksgiving tend to lean bullish. Not all the time, of course. But, the folks who follow such things tell me that buying stocks at the end of the day on Tuesday of Thanksgiving week, and then selling them at the close on the Friday following Thanksgiving, yields a profit about 80% of the time.

Those are good odds.

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So, I came into this week looking forward to buying into any weakness on Monday or Tuesday. But, the stock market never makes it easy. 

Stocks got hit hard on Monday. Then they got smacked down even harder on Tuesday. And it has lots of folks wondering if the market is going to follow the traditional pattern, or if it has something new in mind.

Heck, the market certainly isn’t behaving how I expected it would. I was looking for the S&P 500 to bounce back up towards its 50-day moving average (MA) line before dropping back down and retesting the October lows. After yesterday’s action, we can forget about the bounce. The market is already in the range of a retest. Take a look…

The S&P 500 closed yesterday at just about the lowest level at which it closed in late October. On an intraday basis, the index dipped closer to 2605 at the low of the October correction. But, on this daily chart, yesterday’s action sure looks like it qualifies as a “retest.”

Notice, though, that all of the technical indicators are trading well above their October lows. This “positive divergence” is usually a good sign that the momentum of the decline is slowing. And that the market may be ready to reverse – at least in the short term.

It’s also important to note that the S&P closed yesterday nearly 70 points below its 9-day exponential moving average (EMA). It’s rare for the index to stray more than 30 points below the line before coming back up to it. A 70 reading illustrates an extremely oversold condition.

In other words, the proverbial rubber band is now quite stretched to the downside. A snap back rally could develop at any moment.

And with the strong seasonal pattern of Thanksgiving week, I suspect stocks could start to snap back today.

But, like I said, the market won’t make it easy.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Do you think we can forget about the bounce happening? Or do you see the market taking a different turn before year-end?

As always, send in any other trading questions, stories, or suggestions to [email protected].

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