US stocks were mixed on Tuesday in a holiday-shortened trading session. The Nasdaq continued to rise notching up fresh all-time highs, but the Dow and S&P 500 index pulled back slightly. Most sectors in the S&P 500 index were higher on Tuesday, lead by Real estate, Industrials bucked the trend and were the only sector in the S&P 500 index that was lower. Stock prices have been buoyed by low interest rates and the view that a Phase-one deal between the US and China will move to pen and paper smoothly. The risk as measured by the VIX volatility index is near the lower end of the 2019 range, printing near 12.7%. There were no US economic data points released, and the markets are closed on the 25th in observance of the Christmas Holiday.
Stock Could be Overextended
It appears that share prices are very overextended and likely due for a correction. The VIX volatility index which measures the “at the money” implied volatility on the S&P 500 index is very close to the 2019 lows printing near 12.7%. This means that S&P 500 trader’s only believe that prices will move 12.7% over the next 12-months. This compares to the highs during 2019 of 25%. The S&P 500 index has a RSI (relative strength index) reading of 75, which is above the overbought trigger level of 70 which could foreshadow a correction. Gold prices are beginning to rise which tells us that traders are attempting to hedge their risks.
Santa Rally Up Next?
The days in between Christmas and New Years are referred to a period where there is a Santa Claus rally. It will be interesting to see if shares can continue to rise despite a strong Q4 performance and an excellent 2019. The S&P 500 has gained 8.3% in the final quarter of the year and was up 28.6% for the year so far, its best performance since 2013. If the S&P gains more than 29.6% for the year, that would be the biggest gain since 1997.
This article was originally posted on FX Empire
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