Just as frustration turned to fear and panic, we got a monster rally on good economic news and positive signs yesterday. And now, the stage is set for a big test at the 50-day moving average. Failure could mean sliding back to 4,300, whereas closing higher could mean retesting the all-time high.

 

Broad Market Party

There was green on the screen with only a few specks of red, as gains were evenly distributed, resulting in each sector finishing higher as well. I think value players bought Apple (AAPL) and Google (GOOG), and momentum traders leaned into Tesla (TSLA).

Materials (XLB) led the pack as Martin Marietta Materials (MLM) forged ahead. It is one of my favorites names in the sectors and an open position in the model portfolio. The only issue with the move is it was on less than the daily average volume.

Market breadth greatly improved, but didn’t scream runaway breakout. Instead, I want to see greater volume and advancers at a 3:1 ratio to decliners. 

Market Breadth	NYSE	NASDAQ
Advancing	2,554	2,960
Declining	760	1,502
52 Week High	156	107
52 Week Low	23	53
Up Volume	2.81B	2.80B
Down Volume	799.21M	1.45B

Market Carnage and Opportunity

The carnage on the NASDAQ Composite has been underappreciated. The average stock in the index is down 38% from last year’s high levels. That’s more than profit-taking; I think institutions bailed, and it became a stampede herd. The great news is they will come stampeding back, but only after its clear their shift to value fails to keep up.

I’m also watching the Russell 2000, which has been moving sideways for a long time after giving up big gains.

NASDAQ Composite

The NASDAQ Composite closed right in the shadow of its 50-day moving average of 14,868. The index is populated with classic momentum names that can turn on the jets in the blink of an eye. It makes for fantastic fun when things are working out, and hair-raising screams when moving lower.

Covid-19

For all the talk about supply chains, inflation, the workers’ strike, we tend to forget the origins of all our misery – Covid-19. I don’t want to spend a lot of time lamenting, but the country was on its way to an economy that many said we could never achieve.

Powerful forces are looking to dismantle the machinery and mindset into a move passive nation, looking to rest on past laurels and accumulated wealth. Well, the good news is case count is coming down.

Bottoming action last week has folks feeling a little better – sending the bullish sentiment surging back, although it’s still under the daily average.

Portfolio Approach

We added to Technology yesterday afternoon in our Hotline Model Portfolio.  

Today’s Session

Earnings continue to fuel the market higher.  In fact, Goldman’s (GS) results moved the needle on the broad market more than the retail sales beat.  Here’s the rub for all the talk of inflation, which is a killer as tax. Households are sitting on enough cash to pay the extra cost. I think that’s the story this earnings season.

Inflation is sizzling and for too many households it is becoming a challenge to day-by-day but wages have been climbing as well.  For the first time during an inflation boom, wages have outpaced prices on annualized basis.  This means many people are paying up and this is great news for companies that have been able to pass along those higher costs. 

I think this is the reason this earnings season will blow away the Street.

Mixed economic data with Empire State Fed Manufacturing number coming in below estimates, but it’s not a disaster.

Retail sales for September +0.7% consensus was -0.2%.

September Retail Sales	Month to Month	Year to Year
Headline	+0.7%	+13.9%
Motor	+0.5%	+7.8%
Furniture	+0.2%	+13.4%
Electronics	-0.9%	+17.2%
Building Materials & Garden	+0.1%	+5.8%
Food (at home)	+0.7%	+7.0%
Health & Personal Care	-1.4%	+6.8%
Gas Stations	+1.8%	+38.2%
Clothes	+1.1%	+22.4%
Sporting Goods	+3.7%	+14.2%
General Department Stores	+2.0% +0.9%	+13.2% +18.9%
Misc.	+1.8%	+21.4%
Non (Internet)	+0.6%	+10.5%
Food (away from home)	+0.3%	+29.5%

Now we wait for the Michigan University consumer sentiment number.

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