Stocks climbed in the Wednesday session with the S&P 500 Index knocking on the door of the psychologically important 5,000 level. The large-cap benchmark added eight-tenths of one percent, continuing to feel the pull toward the important hurdle overhead as traders remain focused on growth (technology and communication services). Wednesday’s move starts to resolve the ultra short-term bull flag pattern highlighted in our last report as providing an easy runway towards and beyond the round number on the benchmark, a positive setup that aligns with the positivity for stocks that is normal through the first half of February. The benchmark continues to portray characteristics of a bullish trend with momentum indicators holding above their middle lines and major moving averages rising above one another. But while everything remains conducive to seeing the 5,000 level on the benchmark becoming fulfilled, our speculation is that this may be the “last hurrah” before digestion set in, likely coinciding with what can be the weakest two week period of the year in the back half of February. The struggle the market is having to broaden out the rally beyond just the tried and true growth segments and the overvalued/overbought state of growth raises concerns pertaining to whether the latter can continue to perform the heavy lifting while the rest of the market fails to participate. As we have highlighted in the past, the lack of breadth in the market isn’t necessarily a problem so long as the best and the biggest companies in the market continue to attract inflows, as they have, but should those buy programs be turned off and rotation remain absent, a certain degree of top-heaviness in the market leaves stocks vulnerable to a swift correction. For now, or list of segments of the market to Accumulate remains blanketed in growth segments, as has been the case for much of the past year, but we could find the leeway to become more tactical within our intermediate-term view to step back from these segments should evidence of upside exhaustion become apparent.
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Two weeks generally is too short for a correction. It would to a pullback before another rally to the highs, even in a bearish scenario. |
