The indexes again test the breakout and close modestly higher on the day. The leaders were energy (XLE) up 1.5% and confirming the break higher on Wednesday. Industrials (XLI), Financials (XLF) and Basic Materials (XLB) up 0.6%. What is driving? There is the million dollar question as the argument among analyst is almost as interesting as the Romney – Trump war of words today. The beautiful part of the Romney speech today was he basically called Americans to stupid, when it comes to Trump, to make there own decision. As my mom used to tell me… “people who live in glass houses shouldn’t throw stones!”
But, back to our scheduled event of stocks… the divergence between fundamentals and technical data are almost as wide as the yield on high yield bonds to treasury bonds. The charts, indicators and data points are not getting along very well and for me that create a concern about the move higher. I am not saying don’t trade it or put money to work… I am simply stating you have to be aware of who can potentially throw stones at your glass house. Opportunity with elevated risk calls for precautions and knowing where the exits are in the event of a fire.
Because the markets are pushing higher I have no reason to convince you to buy or sell… the market hit entry points, we are managing the positions, adjusting our stops and watching how this all unfolds and plays out near term. You can run through the ten sectors of the S&P 500 index and see simply that only two sectors are not worthy technically of a trade… Healthcare (XLV) and Utiilties (XLU). They may coast along for the ride going forward, but for now not interested. The other eight sectors have reversed and technically are in good shape.
Global positions are moving higher as well. Emerging Markets (EEM) followed through on the upside. The EAFE (EFA) cleared the next hurdle as well showing positive moves on lower volume. Commodities are moving thanks to crude oil (USO). Base metals (DBB) are looking positive with copper (JJC) and steel (SLX) looking stronger. Gold (GLD) and Silver (SLV) are moving higher as well.
Bonds are not selling on higher yields which is a concern.
The S&P 500 index left a doji candle on the close tonight and we will see if that leads to any negative tomorrow as well.
Bottom line… take what the market is giving, manage your risk accordingly, and watch how it unfolds from here