Buyers Keep Shorts At Bay, Focus On Defensive Large Caps
Declan Fallon | Feb 27, 2017 12:02AM ET
Just when it looks like shorts may have something to attack, buyers step in to make up the lost ground. The rally is out on a limb, but not enough to place it at the outer extremes of historic price action. So while there hasn't been any big pullback since the election, there isn't much to suggest a pullback is coming soon either.
The weakest of the indices is the Russell 2000 as 2017 continues to see money rotate out of speculative stocks into more defensive Large Caps. However, Friday did offer some healthy backtest of former resistance turned support, and buyers have a relatively low risk opportunity to take advantage; helped by the proximity of 20-day and 50-day MAs.
The NASDAQ had a solid close on Friday, but now there is a downtick in relative performance against the S&P to consider. With the focus on defensive stocks, buyers now have fewer options to sustain the rally. Having said that, price and technical action for the NASDAQ is excellent.
The S&P is slowly re-assuming the market leadership role after an extended 'flat' period of relative performance. While this isn't the best news for those looking for the rally to continue long-term, it does suggest bulls will still find joy with defensive, large cap stocks for the foreseeable future.
The Semiconductor Index almost registered a channel breakdown, but did enough to come back and finish above channel support. Of the indices, it's perhaps the one closest to showing a period of intermediate-length (up to 3 weeks) weakness. Technicals have become very scrappy and it has struggled to lead out against other technical stocks.
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Another rally experiencing some weakness is the relationship between the Dow Transports and Dow Index. This Dow Theory bellwether had seen a positive turn last summer, with transports enjoying two channel breakouts. However, since the election result, transports have struggled - suggesting the economy has little more to give.
And near maximum employment, there won't be many new consumers coming on line. And we all know when it comes to boosting profits, letting staff go is the cheapest way to please shareholders and overpaid CEOs. Eventually, this catches up with the economy and recession returns.
The short term outlook remains favourable for the market, but there are warning signs for a more prolonged period of bearishness on the horizon.
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