I remain extremely bullish stocks the balance of 2023 and into 204, but I've been a little short-term cautious the overall market since mid-February, but bullish signals are beginning to emerge once again. The most important sector, in my opinion, is technology (XLK). This sector reeks of aggressiveness and rapid growth. It generally needs a strong or strengthening economy, however, to trigger the group. A favorable interest rate environment helps as well. It was just one month ago that the XLK had fired a technical warning shot as a negative divergence appeared on its daily chart. That typically takes 1-3 weeks to iron out with potential 50-day SMA and PPO centerline tests awaiting. We've now seen both of these and it's 4 weeks later. Check out the chart currently:
The recent bank crisis is doing the Fed a big favor. The Fed has been raising rates trying to control inflation. However, this inflation was induced primarily by inadequate supply/supply chain issues. Raising rates does little to increase supply. Instead, the Fed's game plan has been to try to kill demand. In the process, we're seeing a bit of collateral damage in the banking group. As banks falter, their ability and willingness to lend diminishes. If banks limit lending, even temporarily, economic growth will slow or stall. This short-term crisis will help the Fed achieve its goals. In my opinion, it's time for the Fed to pause and the bond market agrees. Long-term treasury investors take a number of things into account before deciding whether to buy or sell. One key factor is inflationary expectations. The rapidly-falling 10-year treasury yield ($TNX) is not only suggesting that inflation problems and worries have eased considerably, but these lower rates are now beginning to fuel the growth story.
Do you think we're heading for a nasty economic meltdown? Then please explain why Wall Street is driving growth stocks to the moon right now?
As the media has a blast with yet another negative news story and panic sends more retail traders to the sidelines, Wall Street has been buying growth stocks hand over fist! You don't position into growth ahead of an economic storm. Folks, I listen to the charts, not the lips, when I analyze the stock market. Let the naysayers say what they want, this market is poised to move higher.
In tomorrow's EB Digest, our FREE newsletter, I'll provide one of my favorite technology stocks, one that I expect to soar heading into its next earnings report. To subscribe, simply CLICK HERE to enter your name and email address. There's no credit card required and you may unsubscribe at any time.
Happy trading!
Tom
