Dirty Fingernails Rally Points To Real Growth

Nearly a month ago, the market was at a precarious spot on the charts- it held when it had to and it has picked up steam.

What I initially saw moving the needle was buying in select consumer discretionary names with greater confidence to spend savings from cheap gasoline and perhaps slightly higher wages. Buying in oversold material names added a different flavor to the rally. There hasn’t been a go-go feel to the rebound, but there’s been an orderly bounce with fairly to under-valued names in the lead. Now, crude oil is coming on strong and ready to move on a positive path for the year.

This has been a dirty fingernails rally over the past month, led by industrial (+6.45%), Energy (+6.44%), and materials (+5.79), which is the kind that points to growth that is the foundation of a real economic improvement.

Of course, China’s commanding economy is adding a bit of oomph to the material story, as that government is serious about growing the economy regardless of demand and potential bubbles.

Meanwhile, the composition of our rally continues to impress. Blue chips are riding high with 51 hitting new 52-week highs.

The market rebound has been remarkable, but most names in the Dow Jones Industrial Average are down for the year despite major rallies over the past month (only the smartest guys in the room: Goldman Sachs (GS) down in the last month). There are several themes playing out, including Dogs of the Dow, which sees the worst performers from one year shifting into the winner’s circle the following year.

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That’s great news for Caterpillar (CAT), Wal-Mart (WMT), and Exxon (XOM).

The Dow is rapidly approaching key resistance of 17,150- that’s the big test. Moreover, I like that it consists of blue chip names without a lot of sizzle leading the way.