Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The New Year Brings Strength to Markets, but Is It Real and Can It Last?

By

Along with the leaderboards, investors should take individual sector strength into consideration. This will provide insight into the depth and strength of market direction.

PrintPRINT
A point of view can be a dangerous luxury when substituted for insight and understanding.
– Marshall McLuhan

Not more than five months ago, September 6, 2012 to be precise, the S&P 500 Index (INDEXSP:.INX) broke above the 1,425 resistance which has been in place since May of 2008. This level equated to the 'last' resistance prior to the all-time highs of ~1,550 set nearly 13 years ago (March 2000) – the beginning of my firm TAM's 100 Year Market Theory fourth secular channel. As the majority of sophisticated investors are aware, this high was solidified and confirmed nearly five years ago (November 2007). When evaluating last September's move/break, from a purely technical stance, the probabilities indicated a likely test of the prior 'all-time' highs. Yet, given the political uncertainty and fiscal cliff sensationalism, investor confidence was more driven to risk-off (or risk-neutral) rather than risk-on. This shift of mentality befell a very quick top of 1,475 not more than a week later and bested an 8.5% correction heading into the election. Yet, 2013 seems to have brought new vigor to the markets. But is it real, and can it last?

With the SPX up 3.2% thus far, and pushing the September top, there are many market technicians and fundamentalists alike awaiting confirmation of the potentially pending move. Again, if this is to be the case, technically speaking and in fear of sounding like a broken record, 1,550 is the next likely resistance point the market will have to contend with -- assuming 1,475 has truly been surpassed. All in all this would equate to another 5% from current levels. When assessing the risk inherent within the market (SPX), the most probable support remains at 1,400 (5% down).


Click to enlarge

The reality of the fact all comes down to market breadth. Most evaluate this based on the number of companies reaching 52-week highs versus the number of companies reaching 52-week lows. This is a good technique, for the surface. But what if most of the new leaders are all within a few sectors or industry groups? Along with the leaderboards, investors should also take into consideration the individual sector strength. This will provide insight into the depth and strength of the underlying move. As of Friday, January 11, information technology makes up the majority share of the SPX weighting at 18.89%. This is followed by financials at 15.75%. Otherwise stated, 35% of the SPX move can be contributed to these two sectors; hence the importance of ascertaining their individual technical condition and stance.



After evaluating the top tier, midrange weighted groups are primarily where the rubber meets the road when it comes to 'bull' longevity. Industrials, health care, energy, consumer discretionary, and consumer staples all lie within the 10-12% weighted range and together make up an additional 55%. As for the remaining 10% it is mainly the non-cyclical sectors which typically do not drive nor lead the markets' strength (utilities, telecom services, and materials).

The simplest way to gain insight into longevity of strength is to continually stay technically-minded by evaluating the following ETFs:
This type of evaluation – weighted technical stance – is the essence of gaining further insight and therefore confidence into the overall market direction.

I hope this helps and finds you well.

Editor's Note: Read more at Tesseract Asset Management.

Twitter: @TAM_News
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely= reflects the analysis of or opinion about the performance of securities an= d financial markets by the writers whose articles appear on the site. The v= iews expressed by the writers are not necessarily the views of Minyanville = Media, Inc. or members of its management. Nothing contained on the website = is intended to constitute a recommendation or advice addressed to an indivi= dual investor or category of investors to purchase, sell or hold any securi= ty, or to take any action with respect to the prospective movement of the s= ecurities markets or to solicit the purchase or sale of any security. Any i= nvestment decisions must be made by the reader either individually or in co= nsultation with his or her investment professional. Minyanville writers and= staff may trade or hold positions in securities that are discussed in arti= cles appearing on the website. Writers of articles are required to disclose= whether they have a position in any stock or fund discussed in an article,= but are not permitted to disclose the size or direction of the position. N= othing on this website is intended to solicit business of any kind for a wr= iter's business or fund. Minyanville management and staff as well as co= ntributing writers will not respond to emails or other communications reque= sting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE