Stock Market Breakouts Lack Volume, May Limit End-Of-Year Rally

stock market index breakouts higher light volume analysis chart image november 12

Stocks are showing breakout bullish patterns on their Market Forecast patterns that suggest we may be heading towards a short intermediate run into year end. Considering the lack of a healthy pullback (beyond the 23% Fibonacci retracement level), the expectation is that the next run may be shorter than what we’re used to with another retracement likely in January next year.

There are other limiting technical factors that suggest a new rally may be limited in scope, including the percent new highs index in the S&P 500 Index for the past four weeks and the relative strength line for the NASDAQ relative to the Russell 2000 Index.

Gaps from Monday and Tuesday are getting filled in, except for the Russell 2000 and Dow Jones Industrial Average. The S&P 500 and NASDAQ have already started to fill in some of last week’s gaps. This is expected to continue with the VIX Volatility Index hitting support and today’s stock market rally having weak support with light volume and very small range (compared to recent moves).

We’ve seen similar patterns of small-cap outperformance and strong, quick moves in international markets – especially relative to the NASDAQ – back in early June this year. We saw how that pattern played out and expect a similar period of correction coming in the short-term or, if we sustain an intermediate term breakout, will limit upside returns and the length of the run.

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Industrials, Energy and Financials – three embattled areas of the market – have been leading this current move to a possible breakout, with a small gain in the Cyclical areas today. Unfortunately, the leadership still resides in Technology, Communication Services and Consumer Discretionary and today’s rally in those spots came on light volume. This is not the most confident pattern to start off a new intermediate run…yet.

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Stock Market Video for Traders – November 12, 2020

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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.