Disturbing Late Sell-Off Trend Undermined Stock Gains This Week

For the third time in the past four sessions, the major indices exhibited what can only be described as a disturbing trend: a late-day sell-off sending the averages back down to, or below, their opening levels.

This similar pattern - of stocks rising in the morning, leveling off and then dropping like stones off a mountain, has been identified this past Monday and Tuesday, and was exceptionally profound in the short session, Friday.

In general terms, no news accompanied the rise or falls, so, it should be regarded as an algorithm-trading-based function, as it's unlikely that humans would react in such herd-like behavior (well, maybe) as stocks have shown this week.

Friday's decline on the Dow and S&P (the NASDAQ managed to finish positive) might be viewed by those more occupied with Black Friday shopping than stocks as a minor issue - only 10 points on the Dow - though taken with the perspective of the whole 3 1/2-hour trading day, the dump was off a level that had the Dow at all-time highs, up 78 points on the day in early trading, finally losing all bids in the final twenty minutes.

Delving deeper into the phenomenon, Friday's decline could be the result of channel checks or car counting at selected retail locations that some organizations were conducting over the course of what is widely believed to be the biggest retail shopping day of the year. If, for instance, some of the trading firms were being fed less-enthusiastic figures from the field, it's not outside the realm of speculation that some adroit stock jocks could have been taking profits late in the day, and that would bode ill for a shopping season that's already six days shorter than last year's and, according to some analysis, may be the worst holiday season since 2009.

In that case, stocks should be expected to not just fail at the close, but moreso at the open, in coming days. Traders will have the weekend to figure this out, so, looking forward to Monday, a quiet open and negative finish might just confirm the retail fears. Saturday and Sunday shopping will be recorded by the compilers of such data and disseminated to market participants well ahead of Monday's opening bell.

With November jobs data due out Friday, the first week of December may be a watershed event for traders. Stocks are up significantly over the course of the year, by some measures, exceedingly so, and there hasn't been a sizable pullback in stocks since the government shutdown in November.

Additionally, the ACA website is supposed to be up and running at 80% capacity come Saturday, and more issues with the entire ObamaCare program might just give speculators enough reason to put on the brakes.

Of course, money has to go somewhere, so there's likely an equal chance that there will be a "Santa Claus" rally on top of this year's already-substantial gains, and the recent trend of late-day selling disregarded as nothing more than an algorithmic anomaly.

Whatever the case, next week bears close scrutiny, no matter which way one is playing the market. The larger picture, with stocks being buoyed by the Fed's incessant money-creation, remains decidedly bullish.

DOW 16,086.41, -10.92 (-0.07%)
NASDAQ 4,059.89, +15.14 (+0.37%)
S&P 1,805.81, -1.42 (-0.08%)
10-Yr Note 99.96, -0.07 (-0.07%)
NASDAQ Volume 823.70 Mil
NYSE Volume 1.59 Bil
Combined NYSE & NASDAQ Advance - Decline: 3173-2307
Combined NYSE & NASDAQ New highs - New lows: 528-27
WTI crude oil: 93.25, +0.95
Gold: 1,250.60, +12.80
Silver: 19.98, +0.348
Corn: 424.50, -2.00