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Stocks Are Still Holding All the Lines

Serge Berger

Aside from an intraday slip last Friday, the broader U.S. stock market had another decent week last week. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and the Russell 2000 as represented by the iShares Russell 2000 ETF (NYSEARCA:IWM) closed higher although the Nasdaq 100 as represented by the PowerShares QQQ Trust (ETF) (NASDAQ:QQQ) took a pause.

Stocks Are Still Holding All the Lines

In regard to the latter matter, in last Monday’s opening missive I offered that while I still think that large-cap technology stocks (FAANG) and others could hold the bid in to year-end as a function of under-performing fund managers having to add more of these stocks to their portfolios, the QQQ etf did look stretched and may need a pause.

The top two things on my notepad this morning as we fire off another fresh five session set are as follows:

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Return of intraday volatility? Energy stocks regain a bid

Last Friday, news surrounding the investigation into the Donald Trump campaign roiled stocks intraday but by day’s end left little to no bearish signals behind on the charts. Quite the contrary, the IWM ETF which at one point on Friday was lower by 3% rallied all the way back to close the day only marginally lower.

Looking at the chart of the Russell 2000 IWM ETF, we see that it has formed a series of higher lows (green up arrows) since August, the most recent higher low being the intraday low from last Friday.

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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Note also that those lows last Friday coincided with the yellow 50-day simple moving average. None of this suggests that the IWM ETF has to shoot higher again from here but it does show resilience on the part of the bulls. I remain postured with a preference for small caps over large cap indices like the SPY ETF into year-end for now.

So you know, the first two weeks of December have a tendency to see a little volatility uptick with the possibility of a slight dip in stocks before a year-end melt-up comes to fruition.

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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Bullish reversals such as the one by the IWM etf last Friday December 1st offer wonderful opportunities for traders and investors to put on income trades for monthly or quarterly income. If you would like to learn more about this strategy then please join my next webinar on this topic on Tuesday Dec. 5. Register HERE.

Energy stocks as represented by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), which along with the price of oil has been one of my main bullish calls for the fourth quarter last week also gave us a nice bullish reversal. On the chart note that in late October the IWM pushed back above its red 200 day simple moving average for the first time since the spring of 2016. The re-test of this line over the past couple of weeks looks to have held as a bullish reversal took place last week. From here and barring any major outside news to reverse last week’s rally the XLE and the broader energy stocks complex looks to trade higher into the low to mid $70s as a next upside target for the XLE ETF.

In summary, while political and other news flow could bring about some more near-term volatility for the broader US equity markets in the first couple of December weeks, the latter part of the month has a strong seasonal tendency to see a slow push higher in stock indices.

Check out Serge Berger’s Trade of the Day for Dec. 4.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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