After the Santa Claus rally over the last three trading days, we were due for some profit-taking. It hit today but overall it was fairly mild. Breadth on the Nasdaq was just slightly negative and energy and commodity stocks continued to be chased higher. Financials were weak today and JPM in particular looks precarious, but overall it wasn't bad action.
The question we have to ponder at this point is whether the end of seasonal positives are going to cause some flipping and more aggressive selling. We had a big run and there are some recent gains to protect. This was a fairly classic end-of-the-year run and traders were obviously hungry for this type of action, but one thing we learned last year was to take profits when we have them.
We still have solid technical setups for the major indices in the intermediate term, but we are extended shorter term and the test will be how we act on a pullback. Are the buyers who missed out on the recent move going to jump in on weakness or will selling accelerate? Is the upcoming earnings season going to throw some cold water on the mood or will investors be buying the bad news?
I suspect the bears are going to start looking harder for some short entries here. The bulls have the advantage, but it's possible lots of folks are going to be looking to cut back on longs here very soon.
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