April 8 was most likely the low in this correction. If I’m right, that makes this a “buy weakness” market.
Here are five signals that suggest I will be right, followed by the best sectors to buy.
The 5 Signals Saying “Buy Weakness”
1) The Smart Money Is Buying
The Smart Money Flow Index, published by WallStreetCourier.com, compares market activity during the last hour of trading each day to activity at the open. The idea is that trading in the first several minutes of the day is “dumb money,” and the “smart money” steps in at the end of the day. This indicator normally tracks the market by rising as the market rises, points out James Paulsen, of Paulsen Perspectives on Substack. Right now, this indicator is up, but the market is down. The gap is a bullish divergence.
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2) Voters Are Not Happy
Public opinion polls increasingly show voters are unhappy with the economic policies of President Donald Trump. He sees the polls, too, and he’s thinking about the 2026 mid-terms. The negative polls mean that Trump will bend and give up his hard line on tariffs, which is creating so much confusion and uncertainty among domestic business leaders and investors. A recent CNBC poll showed approval of economic policies is near or at record lows. An NBC poll released this week shows that only 39% of voters support Trump’s handling of trade and tariff issues. Consumer and CEO confidence levels are also very low. This suggests Trump is under pressure to bend, or face midterm losses for his party.
3) The Insider Buy/Sell Ratio Is Bullish
Insiders were cautious for several quarters ahead of the correction. In the past few weeks, they have turned bullish, judging by buy/sell ratios. Short-term buy/sell ratios have moved into bullish territory, says Argus Insider Weekly.
4) The Investor Intelligence Bull/Bear Ratio Is Bullish
This is my good go-to sentiment indicator because it is so accurate. Historically, at one or below, the market is a buy. It was recently .73. This is a rare low level, normally only seen during a crisis like the GFC or during a bear market, as in October 2022.
5) The Market Has Very Low Inflation Expectations
The market is one of the best economic forecasters. Right now, inflation-sensitive sectors are lagging (energy, materials, industrials and real estate). Commodity prices are also weak (oil, copper, aluminum, steel, lead). This means the stock market and commodity markets are forecasting minimal inflation, notes Paulsen. The implication here is that Fed Chair Jerome Powell will have a lot of room to cut rates if need be. The Fed put can be deployed, if need be.
The Best Sectors to Own
Tech, materials, consumer discretionary, industrials and financials do the best during the six months coming out of a correction. You want to buy stocks in these sectors on days when the market is down.
In tech, both Nvidia (NVDA) and Advanced Micro Devices (AMD) look attractive as AI plays. But I’d favor Advanced Micro Devices since it will likely be taking share from Nvidia. I’ll also single out Marvell Technology (MRVL) and Broadcom (AVGO) as AI plays. They are helping Microsoft (MSFT), Alphabet (GOOGL) and Amazon (AMZN) develop custom chips that these hyperscalers hope will differentiate their product offerings.
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