After last week’s holiday shortened trading, I expect more conviction in this week’s action. Despite the run up we have had since mid February, the bulls still have a decided edge here. Not only is seasonality in play, as we have four more full weeks before “sell in May and go away” is likely to take hold, but the market has also done a good job of working off the very overbought conditions and extended charts that were so ubiquitous two weeks ago.
My main thesis is that institutional investors are taking profits in technology stocks and shifting that capital into the energy and industrial/material complex. Many energy stocks have lagged not only the broad market but also the bullish action in the price of Crude Oil. So, I expect those stocks to step into the spotlight now. Also, the financials and insurance companies could see a strong bid here. Again, money rolling out of the tech sector and into those areas is my thesis. The Christmas shopping season is long gone, and with peak driving season just ahead, the strategy makes sense to me. I will watch to see if this thesis holds true this week. However, I will not stubbornly stick with it. For now, though, I believe that it is the most probable scenario.
Below, please find my top setups for this upcoming week.
Also, monitor those high and tight bull flags on $POL, $VOLC, $TRLG, $DPZ and $TIVO. Regular readers of my work know that I have shown those charts many times.
Full disclosure, I am long $CROX, $VLTR, $PSYS, $ETFC, $PRGN. I also have a small position in $QID as a hedge against technology weakness (it is the double short $QQQQ).
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I agree with your thesis but I will offer one addition – treasury yields rose after the employment report (bonds traded Friday). Bonds are about to break down from what I see on the charts. That will cause a large flow of funds from bonds into global risk assets. Further, the employment report has now taken some risk off the table for the global economy – the US is creating jobs again.
I think we are about to start a major move up in commodities and equities.
Yes, I agree that additional factor could be a huge catalyst for another inflationary head fake just as we saw in the first half 2008. Don’t forget that Hugh Hendry in early 2006 predicted that we could have an inflationary head fake that would lead to a deflationary crash (2008), followed by ANOTHER inflationary head fake leading to another deflationary crash. He was correct the first time. Let us see if he will be right again. Even if it is a head fake again, we can still profit from the massive rush to risk assets, as you correctly point out. I appreciate your comment.
You know I like ETFC, should be any day now.
For sure, RC. I am also pleased to see fundamental-based traders like iwin in the PPT in this name. He is long $2 calls, but I forget the expiration date.
Chess…. really enjoying your posts and site….. I am in a few of these beasts…… Thank-you 🙂
My pleasure, Dani. Always appreciate you reading and your comments.