After struggling for days, the indexes finally managed a very energetic bounce on Thursday. Volume was light, but breadth was robust, and there were quite a few big movers.
Unfortunately, the strong action does not indicate anything other than the end-of-the-year games. Stocks have been under heavy pressure as investors position for the new year, and buyers finally decided to take advantage of the overdone selling. In addition, shorts could lock in profits on positions today and then not have the trade clear for tax purposes until next year.
As I’ve discussed, action at the end of the year has little to do with fundamentals, but buyers like to believe that the positive movement in the names they are holding is due to the market recognizing the tremendous value those stocks possess. That is not the case, but movement, as we saw on Wednesday, does create that illusion.
We have one more day of trading in 2022, which is often a random day that is impossible to anticipate. There will be folks that want to clear the decks and dump the positions, and there will be folks that want to buy some names in hopes of a solid start to the new year. The important thing is to not read too much into the action.
Have a good evening. I’ll see you tomorrow.
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