Several Factors Are Impacting the Market Action

We have a continuation of Thursday’s action as a small group of big-cap technology names pushes the Nasdaq and Nasdaq 100 ETF (QQQ)  , while breadth runs solidly negative and sectors like financials (XLF) and energy (XLE) are hit hard.

Part of the reason for the rotation is a drop in interest rates which helps growth names that are more sensitive to interest rates. Growth stocks are valued in great part on future earnings, and when interest rates are low, the discount to present value of the income stream causes higher valuations.

In addition to interest rates, some of the big-cap technology names like Apple (AAPL) are conducting sizable buybacks that help to create positive momentum.

Another factor impacting the action today is option expiry. Quite a few stocks are likely to be pinned to option strike prices. For example, I’m looking for Aurinia Pharmaceuticals (AUPH) to gravitate toward $30 at the close today. It also tends to attract buyers that are anticipating news of a takeover bid over the weekend.

Small-caps continue to struggle with dismal action. I’m seeing a lot of comments from folks that are ready to give up the smaller stocks, which makes me more optimistic about another leg up before the end of the year. Positive seasonality favors all stocks, but it generally helps small-caps more than others. In addition, many small-caps have done poorly this year and are likely seeing some tax selling pressure. The January effect for these stocks should start in late December.

I’m not doing too much today, but I remain optimistic about stock picking and trading as we head into Thanksgiving week.

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