- European and US equities staged an impressive rally last week after brief dip
- Thanksgiving-shortened trading week favours bulls in US equities
- This offers near-term trading opportunity in indices into year-end
- Technicals show S&P 500 has room to rise, Nasdaq 100 a picture of strength
Floor of the New York Stock Exchange. Last week brought an impressive bullish reversal. Photo: iStock
By Serge Berger
After a brief dip last Monday morning following the previous Friday's horrific terror attacks in Paris, European and US equities rallied meaningfully. By the end of the week US equities had completed a bullish reversal worth respecting, particularly heading into this week.
In this Thanksgiving holiday-shortened trading week (US stock market will be closed on Thursday and close early on Friday), the probability strongly favours the bulls, which in itself offers a near-term trading opportunity in the indices.
US equities tend to remain strong into the end of November and possibly early December, before taking a break and then resuming a rally into year-end. After last week's bullish reversal, the question is whether the S&P 500 will push to new highs this or next week, or whether new highs will not be seen until late December or early January.
My personal positioning
Coming into last Monday I wrote: "Watch for any potential bullish reversals, i.e. bearish exhaustion to possibly begin nibbling on stocks and indices again from the long side, for a trade for now." With last Monday's (November 16) bullish reversal, I bought into the S&P 500 along with other long positions in the energy and financial space. While I took some initial profits late last week, I remain long and may buy more on Monday November 23).
While I see and respect the broader imbalances, such as lack of market breadth that has built up in US indices over the past eight months or so, I have mapped on the below chart the potential path for the S&P 500 into year-end or early 2016. A little pullback/breather in the middle of December should not violate last week's lows, or at least not by much if my upside target near 2,170 points wants to be reached.
S&P 500 potential path
Source: Saxo Bank
It's still a picture of strength over in the Nasdaq 100, which of course is endowed with tech heavyweights like Apple, Microsoft, Amazon.com, Alphabet and Facebook. All of those stocks are still trending higher. Fund managers anxious about their performance for the year can well consider chasing those stocks somewhat higher into year-end, which makes the Nasdaq 100 an attractive bet still, at the margin.
Last week the Nasdaq 100 completed a bullish reversal on the following weekly chart, completely reversing the previous week's selling, and then some. This bullish engulfing candle should encourage bulls this coming week as well, whereas bears will first need to see a drop below last week's lows if they want to regain some strength through a multi-week/month lens.
Nasdaq 100's bullish reversal last week (reflected in corresponding ETF)
On the single-stock front, last week the following stocks made fresh 52-week highs: McDonald's, Visa, Salesforce.com, Costco, Home Depot, Activision Blizzard, Sirius XM Radio. These stocks could have the momentum to continue to fare well this week and into year-end, and my personal favourites are McDonald's and Sirius XM Radio.
— Edited by John Acher
Serge Berger is a specialist in swing trading/trend following