Earlier this week, after weeks and almost months of continuous concerns about the bulls’ ability to step up, I wrote about the short-term tea leaves indicating a rally beginning by Tuesday or Wednesday. The bulls definitely did their part so far this week with the small and mid cap indices scoring all-time highs and the NASDAQ 100 close to fresh highs. The Dow and the S&P 500 have rallied, but are still being dragged up by their counterparts.
Software, consumer discretionary, healthcare and biotech remain the sector leaders with banks taking a much needed rest. This all bodes well over the intermediate-term. I mentioned that I was keenly watching utilities the other day, partially because we just bought them, and they stepped up in a huge way. For now, it just looks like a counter trend move after a huge decline, but they are still worth watching. It would be very telling if we start to see utilities, telecom, staples and REITs all begin to lead from the defensive side.
Now that the market has exhibited some strength, I am going back to my theme that this is not the launch to 20,000 I foresee down the road. It’s a nice little rally that is unlikely to go much farther than another 500 Dow points, best case. For the nimble, it’s time to have a plan for defense. On the downside, 17,000 or so should be the floor so the risk/reward ratio still isn’t all that exciting.
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