Don’t fight US stocks during the Thanksgiving week
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Thanksgiving week is traditionally a short one for the US stock market. On Thursday the market is closed, and on Friday it is only open for half the normal day.
In other words, when most investors are on vacation and the banks are closed, the liquidity simply isn’t there for the market to make huge swings. This situation creates the perfect conditions for a stock market meltdown, and this year is no different.
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US stocks have had a terrible year, but the rally is nothing short of impressive. The rally from the bottom is so strong that you shouldn’t be surprised to see stocks rise to new all-time highs in December.
The pennant formation breaks higher during Thanksgiving week
Let’s take the Dow Jones and how it has fared this week so far. A week before Thanksgiving, it solidified into a tight pattern that resembled a pennant formation.
The pennants are continuation patterns. Eventually, the market breaks in the same direction as the underlying trend.
The eruption happened during the week of Thanksgiving – not surprising given the seasonal nature of Thanksgiving, as I mentioned here .
Can US stocks hit a new all-time high?
The pennant formation on the Dow Jones daily chart points to a new all-time high. The measured movement points to a new rally of about 3,000 points, which will push the Dow Jones index to a new all-time high.
So what would have to happen for US stocks to rise in December? Two things come to mind.
One is the upcoming inflation report. If inflation were to cool down even more in November, stocks should rise.
The second is strongly related to the first. If inflation cools, the Fed will slow rate hikes, so stocks should rise more.
Overall, shorting stocks during Thanksgiving week is a risky bet. If the technical picture looks as bullish as it is now, then the safest place is on the long side.
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