The market was in top shape – adding to Friday’s strength! But moneys went through a rotation of sorts, withdrawn from the small-caps and put to work in the large tech stocks, especially the FAANG stocks, FB, AMZN, AAPL, NFLX, GOOGL. Take for example the NASDAQ 100 (QQQ), which closed nicely up by 0.90% juxtaposed with the Russell 2000 (IWM) which saw far more modest gains of 0.53%. The IWM did spent part of the trading day in the red, but when push came to shove, managed to achieve another historic high.
All of the frantic speculation about a trade war and Italy’s debt was in abeyance, little in the way of bad news to be heard in the marketplace. Stock trading chat rooms had their sights set elsewhere as well. It seems that the bears are simply waving a white flag, overcome by despair about finding negative catalysts that could send the market sliding. That was certainly what came across in day trading chat rooms.
The good news was that the market lead was taken by the “heavyweight” stocks and therefore, there’s a high chance of creating ongoing and stable momentum. When FAANG stocks move, the big, i.e. institutional money and funds and the like have little choice but to get on board. The fear of staying behind is the best friend of the FAANG stocks.
Yesterday, the S&P 500 broke up the 2,740 point level, i.e. a bullish technical signal. For a number of weeks already we’ve been pointing to an improvement in the technical environment on the S&P 500 and a consolidation pattern which would likely be broken up. Yesterday, the S&P 500 succeeded in breaking up past another key short-term resistance level, which paves the way for a test of the 2,800 point level in in the foreseeable future, and thereafter, a faceoff with the 2,872 point level. Over the last month, the 2,740 point level was the upper bound of the trading range at which the index had been trading. When considering that the 2,740 point level is now behind us, the resistance level has been cleared, the market hungry for more.
We’ll note that the 2,800 point level represents a rally of 1.9% above current levels, while the all-time high is still 4.5% above the current price level. A rally back to the all-time high at any point over the coming months would be considered a substantial move for summer months, which usually don’t shine performance-wise.
It’s no other than the tech sector which has injected the S&P 500 which a new dose of energy! The tech sector (XLK), recently broke up to a new high – yet again! – scaling past its previous high recorded at the beginning of March.
Another crucial point is the weight of the tech sector on the S&P 500; this point is something you absolutely need to follow. At present, the weight of the tech sector on the S&P 500 has risen to 26.20%. At the beginning of 2017, the sector’s weight stood at 20.76%. That means an uptick of 5.44% in its respective weight over the last 17 months. In effect, these levels were only seen at one point in the past, and that was slightly before the high of the dot-com bubble in 1999-2000.
I still like the positive momentum in tech stocks and will look to stay on board as long as the movement is trending in the right direction. At the same time, it’s important to remember, “The higher it goes, the harder it falls.” That mantra will go into effect at some point down the road and then, of course, our focus will be to try to get out as soon as possible the moment a high is set.
In summary: The bulls are in charge. The market is at an uptrend and bad news has only created buying opportunities. June ’18 is beginning to feel similar to January ’18.
Tuesday: Tuesday’s trading will be affected by the Supply Managers’ Service Sector Index, which will be released at 10:00 N.Y. time. The May reading is expected to rise to the 57.5 point level from April’s 56.8 reading. Like always, every reading above 50 connotes economic growth in the sector. In tandem, the Consumer Confidence Index will be released, which is expected to record a slight decline to the 128 point level, the prior reading having come out at 128.7 points.
The annual ASCO biotech conference, taking place in Chicago, will wrap up today. Biotech stocks will continue to be in the limelight, traders watching individual companies’ announcements.
Have a great trading day!
Today’s Picks – Day Trading!