The market drifted into the close on Monday, but it made another statement about its ability to rally without all the big tech names leading the way. Interestingly, while money came out of certain tech names, it also poured out of Utilities (XLU), which are generally considered safe havens.

Some cash found its way to recently sold off tech names such as Netflix (NFLX) and Nvidia (NVDA). The big winners were Materials (XLB), Industrials (XLI), and Consumer Discretionary (XLY). 

Make sure you have exposure to these areas. I put a few names I like on my website: wstreet.com. I’m not saying not to own big tech. I am just saying that you shouldn’t sleep on huge potential elsewhere. 

S&P 500 Index	+0.24%
Communication Services (XLC)	+0.16%
Consumer Discretionary (XLY)	+0.67%
Consumer Staples (XLP)	-0.05%
Energy (XLE)	+0.65%
Financials (XLF)	+0.28%
Health Care (XLV)	+0.33%
Industrials (XLI)	+0.67%
Materials (XLB)	+0.70%
Real Estate (XLRE)	+0.12%
Technology (XLK)	-0.15%
Utilities (XLU)	-0.35%

The Dow Theory

As we watch for major indices to perhaps take out old highs, it’s critical that we get the right mix of winners to argue for a longer-term move after new milestones are established.

As I’ve mentioned many times, the correlation between transportation stocks and the U.S. economy was established as a key measure of validity and strength for stock market rallies over one hundred years ago by Charles Dow, and several others via editorial observations.

There are six components of the theory, and I happen to believe strongly in two of them:

1. Indices confirm each other
2. Trends persist until reversals

I’m agonistic about two others, and I disagree with these two:

1. Efficient Markets Hypothesis (EMH)
2. Volume confirms trends

There is no way an individual stock can rally 20% in a single session, and the mavens still claim the market to be “efficient.” Moreover, no matter how much information is released to the public, the notion everyone has read every release and a collective understanding is reflected in the market is folly.

Rotation Play of the Day

Yesterday, the airline stocks took off (I never plan to type that out, but it happens each time), helping the Dow Jones Transportation Index (DJT) break through a major resistance point. The airline index also broke through key resistance but has a lot of work to do to recapture the old higher point.

If airlines can keep this up (joining rails and truck stocks), we are going to see the Dow Industrial Average shatter its all-time high record.

Broad Market Rally

I liked market breadth yesterday, especially the up to down volume. In addition, 52-week milestones are looking stronger again:

• NYSE 147 new highs against 27 new lows
• NASDAQ 144 new highs against 68 new lows

Unfortunately, individual investors are still indifferent toward this rally. Both bullishness and bearishness are moving lower, and below historical levels, as investors continue to call themselves neutral on the market. I think all of this changes when all the market indices break out to new all-time highs.  That achievement might make the nightly news… heck, it would be so great - it might even make headlines in the financial news.

Mood of Investors	Change	Current	Historic
Bullish	-0.2%	36.2%	38.5%
Bearish	-2.0%	29.1%	30.5%
Neutral	+2.1%	34.8%	31.0%

 

Interestingly, that bullish reluctance is echoed in the wrong track – the right direction polls sound miserable at 40.5% on the right track, except it’s the highest level since December 8, 2012.  I think this points to a major upside for the economy as more Americans allow themselves to believe in this economy.

https://www.realclearpolitics.com/epolls/other/direction_of_country-902.html

Today’s Session

The market is indicating to open higher as earnings have been great, although, reactions have been mixed.  Kohl’s shares are lower after crushing it because full year guidance was raised a nickel, but the quarter beat was $0.12. If they beat by twelve cents or more for the full year, one has to wonder if management played it too close to the vest.

Meanwhile, TJ Maxx is killing it as well.

Comp Stores

• Marmaxx +7%
• Home goods +3%
• Canada +6%
• International +4%
• Total +6%

The big news for all these retailers is a surge in traffic and pricing power.

 

 

Comments

Hello Charles, we are having a great day today. Thank you and President Trump! I have been reading David Stockman's newsletter and wonder if you are familiar with it. If so, what do you think of it? He is also starting a newsletter that will deal with a way to drain the swamp. POTUS is having trouble draining the swamp and I think the problem is he needs Congress help to drain the swamp, but they are the alligators in the swamp and like it the way it is! Edward D Gildone on 8/21/2018 12:09:14 PM

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