We saw a small pullback in many risk assets as traders took profit yesterday. European markets closed only slightly lower, as did Crude and US Futures. There is no real surprise to see a breather here as markets are a bit overheated.
Daily virus numbers continue to worsen throughout the US and parts of Europe, but at this point in time markets are not reacting. Generally, the worse the Virus gets more stimulus that is on the table. The Vaccines are giving people light at the end of the tunnel. This is helping Value stocks make a comeback.
We must remain vigilant in the markets as many stocks are just moving on the flavour of the month or week. Many areas of the market are very overheated. In saying that many stocks are still looking cheap compared to pre-COVID-19. Next year there is a high likelihood of a larger switch back to Value stocks. Also, If markets continue to rise at this pace a pullback will become more and more likely. As we come into the February reporting, we will see the true position companies are in post-COVID-19. But until then let us enjoy the uptrend and get as much from it as we can before the next correction.
With little to go on except flat U.S futures, our market is expected to open slightly lower. It seems once more that we need permission from the U.S to rally, and with out it, we may continue yesterday’s fall or simply do nothing.
The sell-off yesterday was healthy following such a stellar run. In fact, these retracements strengthen trends and increase the longevity of them. Further falls may come, as we have expected to occur at some point between now and Christmas.
6750 remains the next key resistance, with 6600 the next key support. 6666 is a level which our market likes to hang around, much like 6000. Yesterday’s move down failed to break the uptrend line, but if today spells further falls then it will. A break of this trend line will likely lead to a shallowing out of a more sustainable uptrend in the short to medium term. The stochastic are starting to point down, but have not come out of the overbought area yet, and can remain her for some time.
Ultimately, we are likely to see a pullback between now and the expected Santa rally. Yesterday may be the beginning of it but it is too early to tell.
US shares were closed overnight for the Thanksgiving holiday. US futures mostly ticked lower, while the tech heavy NASDAQ futures were fairly flat; mirroring a move in European equities towards the more defensive stocks. Federal Reserve minutes from their latest meeting indicated that they would shortly provide an update on their bond-buying, but that they didn’t see a need for immediate adjustments.
US markets will only be open for a half session tonight due to the current holiday season. We will see Black Friday kickoff the holiday shopping season tonight, followed by Cyber Monday next week.