Stocks surged last week, and the question on everyone’s mind is whether the rebound was legit, or if it was one of those infamous bear market rallies.
If you’ve been trading long enough, you’ve undoubtedly heard the saying, “The trend is your friend.” But over the years, I’ve uncovered a rider of sorts, which states, “Until the trend ends.”
So, how do we know when a trend is ending or beginning? One of my favorite ways is to look at the market’s internal money flows.
Slowly at First, then All at Once
Technology (XLK) was the top-performing sector in the market last week. But the devil is in the details this time. Tech has been the best-performing sector in two of the last three weeks. I’m not quite comfortable calling this a full-blown trend yet, but this is the most important sector for you to watch this week, because if it ends up as the top-performer come Friday, it sends a very strong message to bears – go back to hibernation.
There’s even more to share on this too. Both semiconductors and software, which are key components of tech, outperformed the market-driving sector last week. Remember, tech advancements in the real world don’t happen without chips, and given how beaten down software has been, this is a very encouraging sign.
Tech makes up around 30% of the S&P 500. Without its leadership, stocks aren’t going anywhere.
Does that mean all is well in this tape? Negative. Just look at what’s been leading over the past month, year-to-date, and in the past year. Staples and utilities. This is not bullish, but bulls have more than a beachhead now – they’re building a fort now.
I’ll keep you posted, because this is a very important development taking place,
-Gianni
