One of the things that impresses me the most about Technology is the fact that Amazon, a stock up over 70% since February, isn't even a tech stock. While some people like to argue that Amazon is a Technology company, and that may be true, it is not a Technology stock. In fact, $AMZN represents a 0% weighting in the S&P Technology Sector Index or in the ETF. Instead, it spends its days holding up the serial underperforming Consumer Discretionary Sector with a 13% weighting.
We trade and invest in stocks, not companies. So we'll focus on the supply and demand dynamics of stocks, and ignore the noise surrounding "companies". The big question I want to ask is, what would the Tech sector look like if Amazon was included?
One of the benefits of it being 2016 is that global markets are more interrelated than ever before. We can take price data from the other side of the world and use it to take advantage of domestic markets in the United States as well as many other countries and asset classes. To purposely ignore what is taking place in markets around the world seems irresponsible at this point.
Today we are watching what Latin American stocks are suggesting for the next direction in Crude Oil prices:
Sometimes Standard & Poors, Dow Jones, MSCI and FTSE simply don't do the trick. If we want to analyze a specific group of stocks and the big boys haven't created an index with what we want, what then? Through technology, we can just build our own. There's nothing stopping us. Now, we're not just going to create random indexes so we can complete with them in their space. The point here is to build something if and when it is necessary. Will it help us throughout our process or just create unnecessary noise? That is the big question.
Every week I go sector by sector and start my analysis from scratch on both weekly and daily timeframes. This provides structural perspective to get a bigger picture outlook and then I work my way down to daily timeframes for execution and risk management purposes. This is what we call a top/down approach. Along the way, I also want to see how each sector is performing relative to the rest of the market. This relative strength analysis is usually a 'heads up' for what is to come on a more absolute basis.
Today, I want to focus on one of the most important sectors in the US Stock market and why the relative underperformance is something we want to keep on our radar.
This week I dropped by the News Corp building to chat with Liz Claman on Fox Business. Liz simply wanted to know what we want to be buying and what we want to be selling. I think we need to be watching last year's highs in both the S&P500 and Russell3000. If prices are above those levels, it's hard to be bearish. When you ask what will drive price higher, I'm in the camp that mega-cap tech, which represents over 20% of the S&P500, will continue to be a tailwind for markets.
This morning I was over at the Nasdaq in Times Square chatting with Amber Kanwar on BNN. We discussed why I think U.S. Stocks continue to rally and which key sectors will drive prices higher. Within each of these very important sectors, there are large-cap stocks leading the way for them. I think we're closer to the beginning than the end of this move higher in the S&P500 and these other important sectors. At the end we touch on why extremes in sentiment could be the catalyst to send British Pounds even higher.
We want to look at the broad market and treat every single stock market index as a tiny piece of a much bigger puzzle. The Dow Jones Transportation Average has been a great leading indicator for stocks as an asset class over the past few years and we continue to want to treat it that way. Remember, the Transports peaked at the end of 2014, 6 months before the S&P500 and this year the Dow Transports bottomed out in January, well before the S&P500 and the other major indexes bottomed out in February. So now what?
When you talk about the most important sectors in the stock market, financials certainly have to be near the top of the list. Technology is the largest sector in the S&P500 by market capitalization, but bull markets need participation out of Financials. For argument sake, we'll chalk these up as the two most important sectors in the market together representing over a third of the entire S&P500. Today, we'll focus on the Financials and why I think they are now breaking out.
There is a constant conversation among market participants about which indexes are the better representation of the stock market, particularly in the United States. While the media often quotes the Dow Jones Industrial Average daily changes, professionals tend to steer towards the S&P500. The argument normally revolves around the price-weighted nature of the Dow Jones Industrial Average vs the market-cap driven S&P500. The diversity of 500 stocks in the S&P is also a key point when compared to just 30 stocks for the Dow.
Today I want to talk about why I think the Dow Jones Industrial Average is underrated and why I think it is one of the most useful indexes for any stock market participant.
The way I learned it, "The bigger the base, the higher in space". In other words, the longer prices consolidate in a narrow range, the more powerful the ultimate resolution. I think we have a good example of this type of behavior in the Industrial Sector. Today we're breaking down why I think there is a lot of room to the upside for these guys.
One of the things that I take most pride in is my ability to keep an open mind and consider every outcome. This goes for all markets, not just stocks. But today I have a solid if/then scenario that I think every U.S. stock market bull should be watching. If this particular index is above certain levels, not only do I see no reason to be bearish, but I think having above average long exposure is warranted.
Since late March and early April, most of the major stock market indexes around the world, U.S. included, consolidated in a sideways range. The dilemma/argument among my friends and I was in which direction would these consolidation resolve? As it turns, out, it has been to the upside. We're not just seeing the S&P500 and Dow Jones Industrial Average breaking out to new highs, we're seeing similar behavior around the world.
Today we're looking at what I think is the most bullish chart on earth.
