Big Picture, Market Analysis, Market Commentary

Beneath The Surface, Things Looking Good

trader chart

Listening to the media, you would think that absolutely nothing has gone on in the stock market this month. While it’s true that the Dow, S&P 500 and NASDAQ 100 have gone nowhere, the other two major indices, S&P 400 and Russell 2000 have seen some gains. Nothing to write home about, but the bulls should take it!

Additionally, and very quietly, high yield (junk) bonds, perhaps my favorite canary in the coal mine broke out again on Monday, further solidifying the bulls’ power, if they really even need to do so. The NYSE Advance/Decline Line scored yet another all-time high, showing just how broad the advance still is after six months.

Leadership has been the real story. I have long mentioned that the defensive sectors, telecom, utilities, staples and REITs were going to cede to more economically sensitive groups and that would be a rejuvenation for the bulls. That’s exactly what has been happening since the BREXIT bottom where almost every pundit screamed from the rooftops that either the bull was over or a major decline was unfolding. Now, they are either silent or somehow revised history and have “always been bullish”.

Technology has been a monster with one of the four horsemen, semis, leading the charge. The “left for dead” banks are also steaming higher for the first time in many years, leaving the naysayers scratching their heads as this has been one of the easy shorts against longs. The other two horsemen, transports and discretionary, while not leading, are certainly right there in the middle of the pack, more bullish support. Don’t forget about energy, industrials and materials as well. They are in the second group of leaders and look poised for more upside.

Yes, it’s quiet on the surface and stocks can pullback a few percent at any time. That’s normal and healthy. Be careful getting negative. The bull ain’t over!

Paul Schatz

Paul Schatz is President and Chief Investment Officer of Heritage Capital, LLC, in Woodbridge, CT. and a Managing Partner at Numetrix Capital, an investment research firm focused on multi-manager, multi-strategy portfolio solutions.

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