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Where Will the Market Turn Next?

November 21, 2017, 11:09 am

After a shaky start to last week, the market bounced back with a vengeance on Thursday thanks to the Chinese 10-year government note closing below 4% two days in a row after a fear that its recent rise was related to deteriorating credit conditions in China. U.S. high-yield bonds also rallied sharply after declining over the past week, which had weighed on stocks and led to questions about the health of the U.S. economy. Plus, House Republicans passed tax reform legislation. We saw some of that strength yesterday, although volume was much lighter as traders got a head start on their long holiday weekend.

SP 500 Chart

As you can see in the S&P 500 chart above, the index is quickly moving up to the 2,590-2,595 level where it has met resistance and sold off before. However, Thanksgiving is generally a positive holiday for the market, so I expect the S&P to at least challenge its recent highs. Whether it’s able to hold and eventually break above those levels in the near term will be largely dependent on news flow from China, along with how the U.S. high-yield market performs.

For years, some pundits have been expecting problems with the Chinese financial system, although there’s never been any real follow through. However, credit growth has slowed dramatically in China as the government seems increasingly concerned about financial risk, and only time will tell us if there’s a real fire here.

We’re in a very emotional market environment right now, which can trigger big moves up or down on the slightest variation of news. That said, this week should be a quieter one with only two full trading days (including today). Remember, the stock market will be closed all day on Thursday, November 23 in celebration of Thanksgiving and then open until 1 p.m. ET on Friday.

I hope everyone has a lovely long holiday weekend!

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