A secular bull market runs on all cylinders. I'm a believer that we remain in the early stages of a bull market that will likely last another decade or longer. How else can you explain the S&P 500's move to an all-time high in the midst of a 100-year pandemic? As I pointed out months ago, the Dow Jones climbed both years during the pandemic one century ago. Too many people confuse a health care crisis with a financial crisis. Yes, the impact of this crisis overwhelmed certain industries like the airlines ($DJUSAR) and hotels ($DJUSLG), but there were plenty of other companies that actually benefited from this crisis. It caused a paradigm shift that likely will be with us forever, despite the fact that the COVID-19 crisis won't. I don't believe everyone in the work force will return to their offices in cities when this pandemic is behind us. The virus forced changes that will last and working from home is likely one of those permanent changes for many.
But as Wall Street sees the "light at the end of the tunnel", more and more companies will begin to play catch-up with those that have soared as a result of the pandemic. Their earnings growth stories will return and we'll see this play out on the charts with improving relative strength and breakouts. In fact, there were numerous companies that fit this profile last week, but I want to focus on 4 (with their corresponding industry group in parenthesis):
MGM (gambling):
HLT (hotels):
LYV (recreational services):
SBUX (restaurants & bars):
The primary similarities here are that these four stocks were (1) major underperformers since the February 2020 all-time high on the S&P 500, (2) belonged to industry groups that were major underperformers over the same time frame, (3) were among relative laggards for months, (4) broke out last week with relative performance either breaking out or strengthening, and (5) had dismal AD lines during March (except for SBUX) that are now seeing those AD lines rising.
Rotation is the name of the game during secular bull markets and there's currently a red flag waving that suggests the near-term could be dicey. Check out my ChartWatchers article, "Key Sentiment Indicator is Flashing a Major Short-Term Warning"). Despite being very bullish about the future, I could see a short-term pullback in the S&P 500, especially during the historically bearish month of September. I'm providing our free EB Digest subscribers potential S&P 500 downside targets to watch - in my Monday article. If you're not already a subscriber (it's free, no credit card required, and you can unsubscribe at any time), CLICK HERE to sign up! While you're there, feel free to click on the green "Join Today" button and give our paid service a shot. We have a no-cost, 30-day trial, so check us out!
Happy trading!
Tom
