Yesterday, I wrote about some “key” price levels to watch. I put quotes around it and chuckle because there is some level of absurdity with getting too cute about a given exact price. That’s one of the many flaws of analysis. S&P 500 2675 is “vital” but not 2674 or 2676? Technicians get way too caught up in exact numbers rather than small ranges which makes a whole lot more sense. And remember, the market will always do its best to confound the masses, especially when everyone is focused on a certain price.
The most important thing about this week and Thursday was that the NASDAQ 100 and Russell 2000 are now leading. Many would call that “risk on” which is what you want to see during a rally, especially off of a bottom. That needs to and really should persist for a while.
Semiconductors have done very well, not only holding well above the February lows during the last decline, but they are also leading. That’s a very good sign for the intermediate-term. Banks on the other hand are not leading but are also not breaking down. I do think this group will lead again and likely see new highs sooner than later. Almost the same thing can be said about consumer discretionary although they are a drop weaker than banks. While I am at it, let’s put transports in the same category as discretionary.
The weaker looking sectors are mostly defensive, utilities, staples, REITs and telecom. That’s exactly what I wanted to see coming out of the bottom. Materials, healthcare and biotech are all on the weaker side which does not concern me at all.
After being left for dead so many times, energy is FINALLY showing some real leadership and outperformance which goes along with my commodity theme for 2018. Energy is typically a late stage bull market leadership group and this fits in nicely with theme of the bull market being in final inning or two.
Things continue to look up for stocks although I don’t think the full all-clear has been sounded. I continue to favor buying weakness and adding risk into weakness. I also want to ignore the laggards and not anticipate when they start to lead. There should be plenty of time.
