Of Interest
The absolute
best leadership a market can have is a combo of technology and
financial.
Strength in tech tells you that the
speculative sentiment, a decent dose of which is necessary for any durable
market advance, is percolating.
Strength in the financials (banks,
brokers, and insurers, especially) tells you that the interest rate outlook is
favorable — or so the market thinks, which is how the successful trader must
think.
For all the talk about how the banking
industry is less exposed to interest rates, rates are still the biggest driver
of the group.
The bad news: Technology is
correcting.
The silver lining: The financials are
breaking out.
The utilities, which once
upon a time were my favorite desert island indicator, are also forging higher.
Spurring the rush into interest-sensitives
has been the breakout by Treasurys of a base, with 10s having lost 30 bps over
the past dozen outings.
Incidentally, you may wish to check
out Loren Fleckenstein’s Trading
The News column elsewhere in the TradingMarkets.com space…some time back,
he’d spoken bullishly on some of the interest sensitives, like the insurers.
But cash remains the preferred vehicle
for intermediate-termers.
“The market is acting screwy and
I can’t make money short or long, so I’m inclined to just blow it off here,”
said The Loquacious Trader, a friend who happens to be as skilled a player on
the intermediate timeframe as they come.
The
Loquacious One went on to remind me of “Jesse Livermore’s premise that good
traders should be able to point out four months a year where they didn’t
trade.”
Meanwhile,
according to the O’Neil organization, Thursday was not a follow-through day for
the Naz, as it made a fresh intraday low for
the recent market decline.
I
have always used the lowest close for my FTD
calculation.
Whether
you use closing low or intraday low, it shouldn’t make a whole lot of difference
in your general market analysis.
Just
concentrate on accumulation days versus distribution days, paying attention in
particular to the magnitude of volume of each session, intraday range (wide or
narrow), proximity of the close, late-day character, etc…in other words, all
of the common sense stuff that just so happens to be the best guide of all.
Also,
focus on whether the Naz is printing higher highs and higher lows or lower highs
and lower lows…i.e. the trend.
Of
course, equally important is an analysis of the action of the leading stocks.
Who
are they and what are they doing on the tape?
Friday,
things were fairly mundane among the bells, with Oracle
(
ORCL |
Quote |
Chart |
News |
PowerRating) the
standout, as much for its turnover (71% above par) as for its 5% rise.
At
this point, Brocade
(
BRCD |
Quote |
Chart |
News |
PowerRating) is clearly THE leading glamour, up 23% from
Thursday’s low.
Broadcom
(
BRCM |
Quote |
Chart |
News |
PowerRating) isn’t too far behind, up 17% intraday from Thursday.
But
once you get past these two, there’s a big drop-off in tape action before you
reach the other vogue names.
Thus,
lots more work needs to be done in the growth corridor before the table is set
for the intermediate-termer.
Even
so, seeing the financials swagger across the tape gives cause for optimism that
the pullback in tech may not be long-lasting.
Let’s
let the tape decide.