Stocks tread water just above unchanged lines ahead of Ferguson protests

Monday, November 24, 2014, 2014 -

Stocks repeated Friday’s early spike rally and then broad gentle selling during the rest of the session – though a positive end still managed to push large caps into new highs.

On Monday the stock market repeated a similar pattern to last Friday’s trading, spiking high out of the gate and then selling all the gains away toward the close – although, a buying ramp during the last 45 minutes or so managed to steal back some of the lost gains.

Volumes were light in this holiday shortened week as a large number of traders plan their Thanksgiving holiday activities, including a lot of travel. While buying interest was subdued, despite the initial spike, and selling took over a large portion of the trading, the Dow and the S&P 500 still managed to squeak out new highs.

The indexes all closed in positive territory, though the Dow inched up only 8 points (less than a tenth of a percent) to 17,818. The tech-heavy Nasdaq advanced 42 points (+0.9%) to 4,755 and the S&P 500 climbed 6 points (+0.3%) to 2,069. The NYSE finished at +0.1% and the small cap Russell 2000 at a surprising +1.24%.

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Follow-Through on Friday’s Stimulus Rally

The fact that the higher risk stocks easily outperformed the large cap stocks means that traders who were willing to be at work today gambled that the stimulus news from China and the ECB would likely keep stock prices up through the end of the year – and they may be right, despite the strongly overbought conditions.

Therefore, we might be seeing a rotation back into risk, since smaller cap stocks usually outperform larger cap stocks during “stimulus rallies.” It is hard to know if this stimulus rally is real or not, since all we have are promises from the ECB – not any real action, yet.

And Peter Boockvar, managing director at the Lindsey Group, cautioned that the timing of more quantitative easing by the ECB is not completely clear, lending strength to uncertainty surrounding these stimulus promises.

Boockvar pointed to comments by ECB Governing Council member Ewald Nowotny noting that monetary policy has long lags, suggesting that policymakers should have a calm hand.

Is this is way of saying Draghi doesn’t have a calm hand and is panicking?” Boockvar said. “Nowotny also said headline inflation is being weighed down by energy prices and maybe they should more focus on the core rate as it’s not as far away from their target.”

Trading in the major European markets turned in a mixed performance on the day, lending credence to suspicion of imminent ECB stimulus. The U.K.’s FTSE 100 Index dropped by 0.3 percent, while the French CAC 40 Index and the German DAX Index both rose by 0.5 percent – this is not “stimulus rally” territory.

If volume remains light following the Thanksgiving holidays, the markets might lose patience in waiting for something more clear from the ECB and choose . . .

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