A wide-encompassing index like the Nasdaq Composite is trading above its rising 20, 50, and 200-day moving averages;
More accumulation than distribution days signifying that institutions continue to support the market and put money to work.
The current market has met most of the above mentioned for the past month or so. What changed last week? Just a few things: Volatility picked up, the daily ranges became wider, some stocks had failed breakouts and failed breakdowns. Nothing else has really changed. The market continues to shrug bad news off and the dips are still getting bought. Software stocks continue to lead while the market is correcting through short-term sector rotations. Overall, the tone remains bullish but the increase in volatility, reversals, and daily ranges might be a sign that the indexes have entered a range-bound consolidation pattern for the time being.
The bad news keeps coming, the market keeps rising. Less than two years ago, the mere mention of more tariffs on China was enough to send the market in a tailspin. Now, they want to delist Chinese stocks from the U.S. stock exchanges and the Nasdaq 100 is within 3.5% of its all-time highs.
Biotech and software stocks have been on absolute fire – squeezing naive short-sellers who are trying to trade rationally in an irrational market. Stocks can still go higher as the current mentality is to buy the dip and mentality doesn’t change overnight. What typically changes are the market leaders as rising markets often digest gains through sector rotation.
Warren Buffett continues to sell. After selling his entire stake in airlines, his last 13F shows that he has decreased his position in financials (GS and JPM). And this from a brilliant guy whose favorite holding period is forever. What is he seeing that the rest of us are not?
Another legendary money manager, Stanley Druckenmiller said the current levels for SPY offer terrible risk/reward for the bulls.
David Tepper chimed in with “ I haven’t seen the market so overvalued since 2000”.
And yet, the dips continue to get bought. The number of stocks making new 52-week high is increasing and so is the number of long setups. Biotech, software, gold, and silver have been notable leaders for the past few weeks and they are likely to continue to shine in a strong or even neutral range-bound tape.