Regardless of the unintended consequences that may or may not come anytime soon from Bernanke and his band of merry printers at The Fed, the market sure does not seem to mind these days. After Tuesday’s powerful move higher across an array of sectors, supported by strong buy volume, I am looking for more “lock and roll.” That lock and roll concept would dictate that short-term extended stocks (but not necessarily topping by any stretch), such as AAPL and CMG, would see some mild profit-taking, while capital rotates down to names setting up behind them in either the same hot retail/consumer discretionary sector, or into other areas of the market such as the financials, real estate, or even the materials and energy plays.
As I noted on Monday, the XLB, ETF for the materials, is holding above its key neckline from the inverse head and shoulders bottom in late-2011. Despite dour sentiment towards the steels, coals, non precious metal miners, and ags, they stand to benefit from a rotation within equities as an asset class, rather than suffering from capital fleeing stocks as a whole. It remains to be seen if this comes to fruition, but then again rotation is the hallmark of a healthy, trending market. And by all accounts that is what we have on our hands.
Here are three charts worth watching into tomorrow’s action that are far from extended and in good positions to see inflows if the bull continues to flex its sharp horns.