For the past 3 weeks, investors have been waking up to positive news related to COVID-19 vaccines. For November 2020, the market stats line reads as follow:
S&P industrial +18% (best month ever)
Dow +13 over 30K (best month since 1987)
Russel 2000 + 20 (best month ever)
A couple of weeks ago, the markets were quite volatile and you could see the consolidation phase seem liked it would continue into late November. Last week, that changed and all major indices are now in positives and have set all new time highs.
Big Picture
Let's start by looking at the S&P 500 and the overall equity market. The overall Market Pulse and Market Direction reading are at an absurdly high level. Both reading over 90+ since last Friday. If we look in detail, we can see that there were 3 new highs set for the S&P 500 for the last nine trading days. The breakout from the correction on October 30 is still currently in place. And now with a breakout of 3580, all major trends are on the upside.
Market Breadth
Along with hitting all-time highs, market breadth is in full swing. With the 5-day ratio hitting at 4.82 and the 10-day ratio at 3.39. Since the momentum burst was triggered back on November 12, 2020, market breadth has been pushing higher and higher with more than 80% of stocks trading above their 200-DMA.
Market Sentiment
For the past couple of weeks, we have made a note of the exuberance in the market. Bullgap's market sentiment is now reading 68.03. Only a month ago, it was at a low of 25.47. This one month surge was previously seen when in December 2017 and late last year. A 20% dropped followed a couple of months later in both instances. This is not to say it will happen but there is typically a catalyst that causes such a drop.
Market Outlook
Small caps are still propelling the broader market. Micro, small, and mid-caps are all doing very well this month. Looking at the weekly chart for IWM below, it has been trending higher since hitting support in late October. IWM is now +22.49 higher since October's low.
SPY
SPY has spiked on Pfizer's vaccine news. It is currently now in a consolidation pattern.
QQQ
QQQ has the same pattern as SPY.
Concluding
Since the election, there seems to be an exuberance in the market. S&P 500 is up by +65 from its mid-March bottom. This sounds great but considering that as of Friday, the market is only +1.6% higher than it was three months ago. And if we look back at pre-COVID 19 highs, it is only up by about 7%. With QE infinity (discussed in previous blogs), the Fed has poured trillions of dollars into the economy. That liquidity has made it into the market place where zero rate policy, bond purchases, backstops have propelled the equity market. That said, the market is near overbought territory. Only time will tell if a Santa Claus rally is in store for the S&P 500. From our prior blog, there may be downard selling pressure coming up in the first week of December as fund managers will look to take profit.