S&P 500; US Indexes Fundamental Forecast – December 21, 2016

The major U.S. stock indexes continued their low-volume grind higher on Tuesday. Investors had nearly no reaction to the geopolitical events in Turkey and Germany. At the close, the Dow remained about 25 points shy of the historical 20,000 level. This price levels seems to be a reasonable target for Wednesday. How the market will react after testing this level will be a guess. Given the expected light volume this week, I’ve actually been surprised by the rally this week.

In the cash market, the benchmark S&P 500 Index closed at 2270.76, up 8.23 or +0.36%. The blue chip Dow Jones Industrial Average finished at 19974.62, up 91.56 or +0.46% and the NASDAQ Composite ended the session at 5483.36, up 25.92 or +0.47%.

Forecast

Given the absence of major macro news and the light volume, the bullish traders have had total control of the stock market this week.

As we go deeper into the week, we can expect to see volume continue to taper off. This is important because it makes the indexes vulnerable to volatility spikes which seem to be the only concern for investors because they can trip up the trend.

Ignoring the geopolitical events in Turkey and Germany are also signs of bull market. That being said, the only way to stop the rally at this time will likely be a collective round of profit-taking and position-squaring into the end of the week.

We’ll be watching to see how the market reacts to the Dow testing and likely exceeding the 20,000 level. If traders decide that this price is just a target then we could see profit-taking emerge shortly after testing it. If investors feel that taking it out and closing above it will signal the emergence of a new bull market then we’ll like trade through it and sharply higher the rest of the session.

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