Last night we took the opportunity to analyze several hundred stocks, across all sectors, looking for direction and sentiment. Defensive stocks in the Staples and Utilities sector saw profit taking and rotation. The Real Estate sector moved lower as well. By contrast, nine of twelve S&P500 SPDR sectors pushed sharply higher. This made us think.
Let me preface by saying, this isn’t a political statement, rather, this is non-political introspection and analysis. After all, we are here to make money, right?
- What if the past 8 years dampened business spending and expansion?
- What if Wall Street sees the potential for unleashing the US Economy through Trump policy?
How else should we view the under current of buying we saw yesterday?
The Financial Sector (XLF) bolted higher. Banks roared higher. Many investment services and brokerage stocks have been basing in sideways patterns showing signs of bullish continuation. Insurance also looks good in many respects.
Stocks like Schwab, E-Trade, Stifel Financial and others are near break out levels, where some have already catapulted to new 52 week highs. These stocks warrant a closer look.
Stifel Financial is one example. SF is a diversified financial services holding company that conducts its business through several wholly owned subsidiaries. Its primary broker-dealer subsidiary, Stifel, Nicolaus & Company, Incorporated, is a full-service brokerage and investment banking firm established in 1890.
The company reported a 16.95% earnings beat on 11/02/16, yet the stock is mere pennies above its breakout (buy) zone. Volume, MACD, STO and RSI all suggest higher prices. Targets are initially the depth of pattern or measured move of 2.75 points. Above the current VBP levels we see no overhead supply. Stop at 39.90 (+/-).
Charles Schwab (SCHW) also saw interest, yet the stock is still near its breakout level, having pushed slightly +1.00 before settling a little below its high of the day on close. Schwab reported a beat of 3% on 10/17/2016 so it is trading post-EPS. Measure move is approximately +2.00. Stop 32.50.
The take away from last nights scholarship is this, statistics can only give you part of the picture. No one knows what is in store for the markets with absolute certainty. My feeling is the underlying strength hasn’t shown up in market internals yet, with NYAD yet to prove the bulls case. However, there are a lot of stocks being bought across all 9 sectors. Defensive shares are being sold.
Considering all of the above, I might consider scaling into 401(k) long equity funds like VINIX by the closing bell. Since I don’t know you’re circumstances, please take the opportunity to consult with your financial advisor, as my intent is to share what I am doing. I intend to limit investment to maybe 5% of my portfolio, adding as markets prove the bulls case or sit tight if the bears return.
Bottom line; I keep thinking of the reasons why stocks were being bought yesterday. Wednesday buying appeared to be institutions, not short covering. Time will tell. For now, I would rather have a small piece invested if this does take off to all time highs and add along the way, then to stand here flatfooted wondering why I didn’t get on the train.
Happy Trading – CV
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