When looking at the market, my thoughts right now are split between the bigger picture, where I think there are many encouraging signs, and the near term, which is more of a coin flip and where some recent action (namely earnings reactions from potential leaders) has been iffy.
My bigger-picture thought is the odds favor the lows for this implosion are in, and when looking out many months, it’s likely the major indexes enjoy a good-sized run.
I say this for a couple of main reasons, the first being the panic selling and true extremes seen near the April lows: Both the NYSE and Nasdaq saw more than 1,000 stocks hit new 52-week lows on two straight trading days (April 4 and April 7), which is almost always seen near major lows. (Yes, 2008 was an exception, but that’s about it.)
Moreover, at the lows we saw 95% of stocks trade south of their respective 50-day lines—again, it doesn’t get much more extreme than that.
Then there’s sentiment, which I thought would take a while to shift given the huge move last year, but the headline-driven selling caused even the man/woman-on-the-street to panic. The granddaddy of all surveys (Investors Intelligence) showed its fewest percent of bullish advisors since 2008 (the figures have remained low for a few weeks, too), while on the institutional side of things, the Bank of America monthly survey saw big investors cut their risk by the most since Covid and retreat back into the pessimistic zone.
And I can’t help but mention the latest Barron’s Big Money poll, whose title said, “Investing Pros Haven’t Been This Worried About the Stock Market in at Least 28 Years.” Talk about a contrary indicator!
Thus, just from a big-picture perspective, I’m fairly optimistic that the next big move is up.
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However, exactly when any sustained advance really kicks into gear remains an open question because the rubber-meets-the-road indicators I follow are still mixed—and potential leadership has yet to get over the hump, with a good amount of selling on strength, at least so far.
For the market as a whole, both of my trend-following indicators are still neutral to negative—most indexes are still living below key intermediate-term and longer-term moving averages. And the same goes for individual stocks: 50% of the S&P 1500 are (that’s small, mid- and large caps) south of their 50-day lines, and 70% are under 200-day lines.
Moreover, while there have been a solid number of growth-oriented stocks showing relative strength (say, testing prior highs even as the indexes are well below their own peaks), I’m seeing many get rejected after approaching any resistance. There are a few examples, but DoorDash (DASH) and TG Therapeutics (TGTX) are two that moved to new highs but have been sold off since.
Now, importantly, that doesn’t mean these stocks or the market are doomed—as I wrote in the first section, the odds are pretty good the lows of the downturn are in and the market can work its way higher. The question in the near term is whether (a) the market mostly kites higher from here, or (b) more backing and filling is needed until the market is ready to have a sustained advance.
It’s an open question with no strong answer at this point, but for me to get aggressive, I’ll need to see the trends of the indexes turn up and some more leadership emerge in the days and weeks ahead. So far, it’s still mostly a waiting game.
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In the meantime, though, now is the time to hunt for relative strength among individual stocks but also sectors and themes; those that have bounced the best and are able to hold their gains should be in pole position to lead the market higher sooner or later. Of course, the list can always change—a month ago, medical and biotechs looked to be future leaders, but many have gotten hit on earnings—but so far, I see two areas that look like they’re ready to go if/when the market is.
2 Growth Sectors Ready to Run with the Market
The first is cybersecurity, the demand for which is always on the rise as the cost and frequency of cyberattacks continue to increase. While not completely out of the woods, the Ampify Cybersecurity Fund (HACK) has pushed nicely above its 50-day line, and many names in the group are testing prior highs, including Okta (OKTA) and Rubrik (RBRK). To be fair, most names in the sector don’t report earnings for another two or three weeks, so that’ll be key, but so far, there’s no question the group is under accumulation.
Then there’s aerospace stocks, which most don’t see as a growth group—but it is, with industry trends lasting a long time and with a huge recurring income component due to services and tune-ups of jets and engines (adding reliability to the results, which attracts big investors). Many names in the group have snapped back nicely, including a couple at or near new highs—Howmet (HWM) is probably the best-looking one in the group, zooming to new highs after earnings, though GE Aerospace (GE) quacks like a liquid leader and it’s right back to its highs, well ahead of the market
Of course, if the near term does bring a few weeks of backing and filling, it’s possible other groups could come to the fore, but right now cybersecurity and aerospace certainly seem ready to take the baton if leadership kicks into gear.
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