Since the last week of 2018, the markets have been on a tear. No investors expected such velocity in the bounce nor the upward momentum that followed. The average investor is looking for a pullback to get back in and so far there isn’t one to be found. Mark Newton, CMT and Founder of Newton Advisors, was on CNBC’s Fast Money Wednesday afternoon discussing this and two popular sectors. He noted that the S&P 500 is up 400 points, or +17%, in 33 trading days equating to +0.5% a day. Investors haven’t seen a market trade like this in a while and potential resistance levels are continuously blasted through.
It’s important to remember the most bullish thing the market can do is go up so investors should not be fearful of this momentum. Following such an ugly December, the rebound in January and February should be welcomed. Mark notes that treasury yields have not following stocks higher, which could be a concern. Otherwise in the short-term, any pullback or higher-high made is something to buy into especially with investor sentiment continuing to be subdued.
Taking a look at the Technology ETF (XLK) chart, Mark feels we may potentially be extended coming into the 200 day moving average after breaking out from the October downtrend. Also noteworthy is Equal-weight Technology and Semiconductors are back to their back November highs.
So now what? Looking away from Technology, Mark believes Financials make a lot of sense here. Financial Sector ETF (XLF) has finally broken out above it’s downtrend from last September and “could gain steam with Technology overbought.”
Within Financials, Mark really likes Payment Processors like Mastercard (MA) and Visa (V). It’s hard for us to disagree with him. These stocks are absolute beasts and have corrected sideways to build out a new base just below all-time-highs. Mastercard is a buy over $225 and Visa over $150.
Mark also thinks J.P. Morgan is at an interesting technical level, to which we agree. Besides making up 11% of XLF, J.P. Morgan is a very important stock for the overall U.S. stock market: “As goes J.P. Morgan, so goes the rest of the market.” Above $103 and J.P. Morgan is a buy.
Looking at Financials relative to Technology from a longer-term perspective, we are down near key support at the 2009 lows. This is not an uptrend and momentum is in a bearish range. A bounce here would be great but we should let price action play out before thinking about taking any drastic portfolio changes between these two sectors in our portfolios.