I’ve been waiting since the week before Labor Day for a sign from deep-pocketed idle funds, and I think we finally got it in the final minutes of trading on Thursday. With 15 minutes to go in the session, the Dow Jones Industrial Average surged 40 points higher. The index didn’t get back to the high of the session, but it’s clear big buyers waited and then pounced.
With all due respect, I don’t think that was ma and pa rushing in before the close. Instead, I think some very smart investors are jockeying, and many more are itching to buy this market. It’s clear efforts to lull sellers have failed. I think it’s a harbinger of a breakout that unleashes a lot of buying.
Market Breadth
There are no more resistance points for the Dow Jones Industrial Average to get back and test 26,616, and I think it happens real soon. Moreover, those would-be headwinds like trade and higher interest rates will become tailwinds.
Talk about irony – I hope the doom-and-gloom crowd or those simply rooting for failure haven’t spooked you out of the market.
My Concerns
Market breadth was slightly better than recent sessions, but still cautious. I suspect contrarians might like this. However, the kind of leg higher I’m looking for needs wider participation and less selling. The breadth can change on a dime, as more folks believe the train is leaving the station without them again.
One area that could help is the financial sector, which has been a disaster this year. Yesterday, regional banks looked awful.
Leadership Beyond Tech
That being said, we continue to see funds flow into sectors beyond technology. Yesterday, Health Care (XLV) continued its strong one-month surge, led by Boston Scientific (BSX), an old favorite of mine. Industrials (XLI), which have been the strongest performers in the past 30 days, were paced by Flowserve Corp (FLS) and defense contractor stocks. Tech came back to lead by semiconductor names, but the sector has trailed badly.
I think we need technology and transportation names to be big parts of the next leg higher, but this market has proven it won’t collapse when tech stocks stall.
One Month Sector Performance | Symbol | Gain |
Consumer Discretionary | XLY | 3.94% |
Consumer Staples | XLP | 3.29% |
Health Care | XLV | 3.41% |
Industrials | XLI | 4.18% |
Technology | XLK | 1.51% |
Chinese tech stocks are staging a strong rebound: Tencent (TCEHY)+10%, Alibaba (BABA) +10%, and Baidu (BIDU) +9% are optimistic over a trade deal meeting. Their problems began long before the trade skirmish, and these names look extremely oversold. They could be good trading candidates.
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