The market’s overall stance did not change much this week, as the big-cap indexes remain strong, the small- and mid-cap indexes are acting so-so and individual stocks are a mixed bag, with some areas looking great but many sectors in trouble.
Still, we’re likely to bump our Market Monitor up a notch next week for a couple of reasons. First, we’re seeing some “staying power” among high-relative strength, Top Ten-type stocks—names that have reacted well to earnings have generally given back little of their gains and pushed higher soon after. Granted, there are still many stocks that have gotten close to new highs and then been smacked lower … but overall, stocks that are in good shape have remained in good shape.
Second, while the big-cap indexes are not the only game in town, it’s hard to ignore their strength. They’ve been “overbought” for a while and running into obvious resistance, yet pullbacks have been mild and the buyers have shown up every time the S&P or Nasdaq pulled back for a day or two.
That’s a bit anecdotal, but by our measures, the longer-term trend of the market could possibly turn back up (or, if you prefer, move from sideways-to-down to sideways-to-up) if the S&P 500 and Nasdaq close today above 2,062 and 4,962, respectively. These longer-term signals aren’t meant as precise buy or sell signals, but obviously such a green light would raise the confidence level that the rally is for real.
Overall, we think it’s OK to become a bit more aggressive, buying good set-ups, setting your stops and then generally giving your best performers a chance to run. It’s certainly not a throw-a-dart-and-make-money environment, and there remain many potholes, but there are a growing number of opportunities to take advantage of, too.