Hey trader,
Stocks exploded to fresh all-time highs last week and confirmed that the bull market is alive and well.
We are still waiting on the Dow to join the party. Based on how this tape is moving, that invitation is already in the mail.
The speed and magnitude of this rally has put the market in record-setting territory. The best part is that it is happening against a negative geopolitical backdrop.
A tape that rallies on bad news is telling you exactly how strong it really is. The headlines keep pushing fear, while the internals keep compounding in favor of the bulls.
One of those two stories is wrong.
If I had to guess, this market is also pricing in a blockbuster earnings season.
Here is what sector leadership is telling me, where the real money is flowing, and how I am positioning into the next few weeks.
Growth Senses Strong Earnings
|
Performance Leader |
1-week |
30-day |
YTD |
1-year |
|---|---|---|---|---|
|
Sector |
Technology (XLK) |
Technology (XLK) |
Energy (XLE) |
Technology (XLK) |
There have been big updates on the sector leaderboard compared to last week, and it all went according to plan for the bulls. Technology fortified its position as the 1-week leader, notching a three-peat on that timeframe.
Tech’s momentum ran so hot that it also captured the 30-day leadership spot from basic materials. Then it reclaimed the 1-year leadership spot from energy.
Energy is now leading on a year-to-date timeframe only. For the bears, that is devastating news.
For the bulls, this is exactly what you want to see coming out of a market bottom. Capital is rotating back into growth with conviction.
The strength inside the tech sector broadened out too. Semiconductors kept printing new all-time highs last week.
The shining star, however, was actually software. That group had been beaten to bits over the past several months.
Software coming back to life is a big development. It signals that the tech sector’s health is only improving and that the rally is spreading rather than concentrating in a handful of names.
What I Am Watching into Earnings
I need to see continued leadership from growth sectors. Tech already has me convinced this rally is legit.
I would like to see it take the year-to-date spot at some point, although that may take a few more weeks. The performance gap with energy is still around 13 to 14 percent.
Near-term, as long as a growth-oriented sector holds the 1-week leader spot, this market can continue higher. The sectors in that group include:
- Technology (XLK) is the current leader and the one to watch into earnings
- Consumer Cyclicals (XLY) confirms the consumer is still spending freely
- Communications (XLC) houses several key mega-cap growth names
- Industrials (XLI) reflects real underlying economic strength
- Financials (XLF) tracks risk appetite and credit conditions
If a defensive sector like consumer staples, healthcare, or utilities shows strength into Friday’s close, this market could experience some bumpiness near-term.
Until that happens, this is strictly a dip-buying market. Buying breakouts to new highs is working even better in this environment.
That is how you know momentum belongs to the bulls.
The perma-bears will keep pointing at valuations and geopolitics to tell you the top is in. They have been doing that for months and have nothing to show for it.
Positions matter more than opinions. Mine are on.
Stay tuned,
Gianni
Category: Sector Leader Bullseye with Gianni Di Poce
