Why was Wednesday important? Here’s why…

Stocks followed up the Fed’s thirteen
consecutive rate hikes with a choppy day of
broad market divergence Wednesday. The S&P 500 Index
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set a fresh four-year closing high. The Dow Jones Industrials
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similarly advanced 0.6%, but the Nasdaq Composite
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weakness and lost 0.1%. The 0.4% gain in the mid-cap S&P 400 gained 0.4% enabled
the index to close at a new record high, while the small-cap Russell 2000
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managed a 0.2% gain and remained in its range. Yesterday’s laggard performance
in the Nasdaq caused the index to finish near the middle of its intraday range,
but the S&P 500 closed in the upper third of its range.

As we often see on choppy, divergent days, turnover was lower
across the board. Total volume in the NYSE declined by 11%, while volume in the
Nasdaq was 7% lower than the previous day’s level. Like the previous day, market
internals were mixed as well. Advancing volume exceeded declining volume by a
margin of 2 to 1 in the NYSE, but the ratio in the Nasdaq was negative by
nearly the same margin. The decrease in overall volume and the mixed market
internals indicates institutions were hesitant to take an aggressive stance on
either side of the market after Fed day. Indecision was the primary theme of the
day.

Looking at the broad market, the most notable thing about
yesterday’s performance is that the S&P 500 finished at a new 4-year high
yesterday:

Because the index closed at a new multi-year high, there is
once again a complete lack of overhead supply to contend with. Therefore, it
would not take a lot of buying pressure to push the S&P higher from here.
However, the Nasdaq still remains in its three-week sideways range. It’s
inability to follow-through and set a new high along with the S&P could cause
choppy conditions overall in the broad market. In the Nasdaq, we are looking for
a closing price above 2,273, which is its prior closing high from December 2:

Although its consolidation near the highs is bullish, relative
weakness in the Biotech sector may be a drag on the Nasdaq. Also keep a close
eye on the Semiconductor Index
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well. Conversely, Pharmaceuticals, Financials, Oil, and Construction are all
waking up again and are helping the S&P to show strength. Our long position in
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(Pharmaceutical HOLDR) triggered yesterday and we are showing a small unrealized
profit so far.

Unfortunately, the last two weeks of December is historically
a difficult time for traders to make money because volume and volatility usually
dry up. From now until the end of the year, we will see more and more traders
beginning their holiday vacations each day. Along with that, we are likely to
see a gradual drop in turnover until the New Year as well. In past years,
choppiness in the latter half of December caused us to give back some
hard-earned profits. However, we are solving that problem this year by simply
remaining on the sidelines, patiently positioned mostly in cash. The market will
always be here the next day, so wait for ideal conditions to present themselves
before deploying your capital.

Open ETF positions: