Robin Williams said it best in the “Dead Poets Society” when he raised his hands in class and shouted, “Carpe Diem” (seize the day)!
What a day – bullishness is everywhere!
Last week I told you that both the S&P 500 Index and the Nasdaq broke out to new all time highs.
I said what a good sign this is for the markets as we enter year-end and begin what is considered the seasonally strong period for stocks – November to April.
The S&P 500 did almost nothing for 21 months – with a lot of sideways consolidation before finally breaking out to new highs last week. Hallelujah!
(Click any image to enlarge)
This week, the DJIA joined the party – breaking out of its own 21 month base of choppy sideways consolidation to reach new all-time highs!
There’s nothing bearish about that. And they say, the bigger the base – the bigger the breakout – only time will tell.
And it’s not just the indices – More and more sectors continue to gain strength too.
Technology, Industrials, and Financials are all hitting new all-time highs, while breaking out of their own bases.
Show me the money! Find where the big institutional money is flowing and you’ll stand a very good chance of finding your way into the markets and sectors poised to make the biggest moves.
Below, I’ve added two relative strength charts I use for a quick glance – comparing SPX to major alternatives – the bond market or Gold. (S&P 500) to GLD (Gold proxy) and SPX to BND (bond proxy).
This is the easiest way I know to see these market relationships at work- if you’re going to know where to invest your capital, it’s a good idea to know what asset class is showing strength.
When the relative strength chart is moving up – as it is now (far right) – it’s a tell-tale sign that S&P 500 stocks are getting more love and attention than their alternative – Gold or Bonds.
The same can be said when comparing the S&P 500 Index to its other major alternative – bonds.
This chart compares SPX to BND (the Vanguard Total Bond Market ETF).
These two relative strength comparisons show that the big money is moving into equities at a faster pace then the two major rivals for investment dollars.
It’s hard to be bearish with so much bullishness, not just here in the United States, but across the globe.
We have new all-time highs in the major market indices, sectors are at or above all time highs and breadth (participation) continues to improve – we’re seeing more and more sectors and stocks within them gaining momentum – meaning strong demand for equities.
It feels like a risk on market – a market that wants to go higher. Can we see a pull-back, a pause? Sure, why not. But the weight of the evidence currently suggests a move to the upside. And as long as the weight of the evidence is in that direction, that’s the way we’ll tilt our portfolios.
If you’re in the bullish camp – and looking to buy – remember this, it’s usually a good idea to buy what’s already been working – buy what has already been hitting new highs.. Avoid names that haven’t participated and stick with the names that are showing positive relative strength and momentum vs their peers and the market.
At Rowe Wealth we use proprietary algorithms and market matrices to narrow in on the specific stocks and sectors that are outperforming the market and their peer group. This allows us to construct and balance our investment models so that they contain securities with the highest chances of outperformance.
If you’re interested in learning more about these models and how they could boost your portfolio’s performance, don’t hesitate to call us at 866.711.2836 ext 3.
We also offer completely free portfolio evaluations to investors with at least $500,000 in investable inventory. This will allow you to quickly zero in on areas of weakness in your portfolio, as well as assess exactly how much you stand to gain and lose over the next six months.
Call 866.711.2836 ext 3 today to learn how one of our models could benefit you.
As always, invest wisely.
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