Momentum Monday – Software Continues to Lead

The charts in this video are powered by MarketSmith

What are the major traits of a strong market:

  • Constant sector rotation;
  • The dips are getting bought;
  • Breakouts are following through;
  • Good news gets a positive market reaction;
  • Bad news doesn’t get a negative market reaction;
  • Relatively low correlation and volatility;
  • 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.

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