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Investors: Forget the Market Theories; Watch These Two Sectors to Determine Broader Strength


Considering semiconductors are in almost everything consumers buy, and all consumables have to be transported, these sectors typically lead economic expansion.

So what's holding the markets up? It seems the PHLX Bank Index (INDEXDJX:BKX) and the PHLX Housing Index (INDEXNASDAQ:HGX), which have been underperforming since 2007 for obvious reasons, are the catalyst. Thanks, Ben Bernanke. With that said, it's not just in these two areas where strength is rising; it's emerging in the high-beta names as well. To opine further, this is simply due to momentum players chasing return -- a dangerous game to play.

Regardless of why and how, the question becomes: Is it enough to sustain longevity of a higher move and push the market to the 2000 & 2007 highs? (~1,550)? Momentum is a tricky animal; the more it surfaces, the more it feeds on itself, but it only lasts until there is no one left to continue the buying. As sad and as big a faux pas as this is to pen, especially in the financial business, it's akin to a Ponzi scheme as it only begins to crater when the last buyer is finished, hence the danger in a move based solely on momentum. One indication of its peril is when the move becomes parabolic.

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No positions in stocks mentioned.

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