Overview
The bulls overcame weak earnings (and forecasts) in mega-cap technology stocks that dominate the capitalization-weighted market indexes, which means that stock participation has broadened and is the most vital sign that the rally will continue. The rally synced nicely with my triple bottom post two weeks ago.
The bulls ignored higher core PCE readings, just as they ignored hot CPI data on Oct 13, suggesting that the rally will continue. Since the PCE data are driving FOMC decisions, the markets expect a 75-bp boost in the Fed Funds rate next week and have raised their terminal rate expectations to 5%.
The first reading for the 3rd quarter GDP came in at +2.6%, but economists do not expect the trend to continue as most expect a recession over the next year or two.
Despite the hotter inflation data, the US 10-year and 2-year Treasury note yields are below their peak from last week, helping support the stock rally.
Key Question
Which sectors are participating in this rally? We use the MetaStock scan engine to answer this question.
Performance Summary
Weak tech titan earnings and tepid forecasts could not keep the markets from having a solid week. For example, VTWO, which covers smaller capitalization stocks in the Russell 2000 index, was the strongest of the ETFs below. Note also how the equal-weight S&P-500 ETF (RSP) did much better than its cap-weighted cousin (SPY), supported by broadening market breadth.
As expected for the past two weeks, the Net-Bull Bear balance is now above +60, a sign that the uptrend can continue.
Our broader Diversified Trend Index (DTI) has climbed to +300, also a sign of bullish strength. The turn-around coincides with the reversal on Oct 13 after the hot CPI print.
The markets continue to face event risk, namely the FOMC meeting next week and unemployment data on Friday, followed by the election the week after. So, there might be some backing and filling, but the bulls seem to have the upper hand for now.
Where the Trends Are
We used the Chande Trend Meter and the MetaStock scan engine to rank the major US equity sectors by trend strength. For example, biotech is one of the top sectors below (see the IBBQ and IBB ETFs). Hence, we delved deeper into the sector below.
A closer look at the top-ranked stocks in the Biotechnology sector showed the following companies with significant uptrends. (Biotech is a defensive sector late in the economic cycle, but one with growth stocks.)
For example, the Anika Therapeutics chart below shows the high CTM reading in the upper panel and a price breakout in the lower panel.
MetaStock Traders Conference
The MetaStock Traders Conference for this Fall is scheduled from Nov 07 to Nov 14.
I am on Nov 07, and I will discuss my counter-trend swing system to buy near market lows. Please register for the conference using the link below:
https://www.metastock.com/offer/event/?whc=traders-conference&pc=Eq-Chande
Wrap-up
My posts should give you a good starting point, with context and suggestions if you like to research. Then, you can visit my website, chandeindicators.com, for more information and ideas. I hope you stay tuned and help by subscribing and recommending it to your friends and colleagues.
Thank you for spending some time with me.
Disclaimer
And now for some housekeeping. This publication is for “edutainment,” education, and entertainment, not for investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.