The stock market rally continues to gain steam, and its angle of ascent seems to be climbing as well. It's a fitting culmination for a year in which equities could finish the year 30% higher and end the last three months with a 10-15% gain.
The last two weeks of the trading year and the first week of the new year are notoriously bullish seasonally. And this trend is more pronounced in pre-election years and in years when the S&P 500 Index is more than 20% higher. Essentially, this is not the time to try to be a contrarian hero and fight the market's primary trend.
Stock Market Strength Overwhelming
Currently, the S&P 500 Index
However so far, the stock market's internals remains steady, and this buying climax doesn't seem imminent. Breadth measures remain strong but not so one-sided that it would hint at a looming reversion to the mean. For example, the ARMS Index compares the volume of advancing stocks to the volume of declining stocks, and it's yet to hit "red-line" readings that would indicate buying exhaustion. The NYSE cumulative Advance-Decline line is another breadth measure that is breaking out with the S&P, signaling that this bull market has plentiful liquidity and the requisite broad participation.
Lack of Divergences
Over the course of this rally, there have been moments of concern with areas of the market underperforming like high-yield credit, emerging markets, or small-caps. However, each of these lagging sectors has turned into leaders over the past few weeks and have broken out or are on the verge of breaking out. These rotations are another indication of a healthy bull market.
Rotations within bull markets are healthy. Overbought stocks or sectors consolidate gains and work off excess bullish sentiment. The exact scenario is playing out with FAANG--Facebook
