The (sector) rhythm of bull markets

In simple terms, a bull market is a period of rising stock prices. In other words, it is the time when market conditions are favourable to owning stocks. Despite such a friendly environment, some investors fail to participate or maximize profits.

The most common mistake is to ignore the sector rhythm of a bull market. Let us explain.

Think of the rhythm of a bull market as having moods just like people. Sometimes you feel well and you want to play sports, while at other times you want to stay at home and read a book. In the same way, sometimes a bull market wants to play it safe and favour Consumer Staple stocks, while at other times it feels bold and adventurous and goes with Gold or Resource stocks. Watching the rhythm of a bull market could provide investors with valuable insights into sector and stock selection but also provide a hint about the age of the bull market.

There are three major principles: 

  1. Every sector will get its five minutes during a bull market.
  2. Each bullish cycle has a leading theme, sector or area that performs the best and leads the entire bull market higher.
  3. Each bull market will undergo a sector rotation; while one area of the market rests, the other sector leads, and vice versa.

Keeping these principles in mind, there is a certain rhythm or sequence in which particular sectors perform at each stage of a bull market.

The first sector to show its strength is Financials. They usually bottom first and lead the advance from the bear-market lows.

Then, industrials follow. It becomes clearer that a new up-trend is underway and investors look for large, quality stocks that would benefit from improving economic conditions.

More and more investors recognize the new bullish trend and want higher returns so they turn to the Healthcare and Technology sectors.

Along with rising stock prices and an improving economy, consumers start feeling better about their prospects so investors turn toward Consumer stocks.

Finally, toward the end of a bull market, investors’ confidence becomes sky high, the appetite for risk is increasing and it is time for Resource and Energy stocks.

The final sector to come alive at the end of a bull market is Golds.    

Please note that these are just guidelines and there are exceptions. For example, the sector that led the market out of the 2009 lows was Golds, most likely due to the nature of the preceding decline.

Despite these exceptions, investors who watch the sector rotation scheme during bull markets not only improve their stock selection and maximize their profits but they also get a hint about the longevity of the bull market. It is worth tuning in to the rhythm of the market.

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Is the current pullback in Gold stocks a buying opportunity?

The rally out of the mid-December lows has dramatically improved the technical standing of many Gold stocks. Early leaders such as Franco-Nevada (FNV-T) or Rio Alto Mining (RIO-T) had breakouts from large base patterns and led the recent rally. Others, such as Agnico-Eagle (AEM-T), Guyana Goldfields (GUY-T) or Fortuna Silver Mines (FVI-T) rallied toward their major resistance zones but stopped short of breaking out from their horizontal trading range.

Most importantly, many Gold stocks rallied above their 50- and 200-day moving averages and, in many cases, turned them up. Those leaders are currently undergoing a pullback toward their 50- and 200-day moving averages. It is crucial that these stocks find support above or near their 200-day moving averages.

Aggressive investors should view the current weakness as a buying opportunity. Register and receive our latest Gold stock reports at na-marketletter.com

 

 

Bob Farrell’s ten observations

Bob was the Chief Technical Analyst at Merrill and one of the most respected and knowledgeable analyst on the Street.  As 2015 begins, we thought that
 re-reading these again might help your investment plans.

  1. Markets tend to return to the mean over time.
  2. Excesses in one direction will lead to an excess in the opposite direction.
  3. There are no new eras – excesses are never permanent.
  4. Exponential rapidly rising or falling markets usually go further than you think but they do not correct by going sideways.
  5. The public buys the most at the top and the least at the bottom.
  6. Fear and greed are stronger than long-term resolve.
  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.
  8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend.
  9. When all the experts and forecasts agree – something else is going to happen.
  10. Bull markets are more fun than bear markets.

 

2015 © Marketbitsblog.com. All rights reserved.

EMC is in the midst of a major breakout.

In our piece “Waiting for Godot,” we said that technology stocks (soft assets) had replaced resource stocks (hard assets) as a new market leader.

The majority of tech stocks had undergone a ten-year repair process and built lengthy base patterns pointing to significantly higher targets. Many of these stocks have had huge breakouts from their base patterns and are now leading the market advance – Microsoft (MSFT, 32% gain since our recommendation) and Sierra Wireless (SW, 109% gain since our recommendation) are just two recent examples. Many others are on the verge of major breakouts. Here is one example.

emc_Blog

Chart courtesy of http://www.stockcharts.com

EMC declined from a high of $99.03 in September 2000 to $3.74 in September 2002 (A-B). Then, the stock began a lengthy process of base building consisting of numerous rallies and pullbacks. During this time the stock intercepted its 40-week moving average on numerous occasions – a normal occurrence during a repair process.

For the last four years EMC has been trading within a horizontal range roughly between $20 and $30 (see shaded area). The recent rise to $30.05 suggests the stock is in the midst of a major breakout. A decisive move above $30 would confirm such a breakout and the start of a new bullish phase toward significantly higher targets.

For more investment ideas please visit www.na-marketletter.com

 

Concerned about the sell-off?

Below please find an excerpt from the latest Market Comment by Ron Meisels and Olaf Sztaba. To read a full text and receive the latest investment ideas please register for a free-trial at na-marketletter.com

Our recent Market Comments applauded the bullish action but warned about “the seasonal chills” that could hit the market, which could eventually lead to a much-needed “traditional autumn scare.” Indeed, following the mid-September failure to reach new highs, the North American markets succumbed to corrective forces. From the start, triple-digit tribulations hit the market and very quickly spooked participants.

This 180º turn has been captured by the latest investors’ sentiment data. The AAII shows that after months of bullish dominance, both sides have reached near equilibrium – 35.4% for the bears and 41.8% for the bulls. This change speaks well for this market’s ability to control investors’ enthusiasm. It also suggests that those who were worried about the end of this bull-run may take a deep breath for now. The bulls are just quitting too easily to indicate a major top.

The plethora of technical indicators, including the Net-Day index and the smaller number of 52-week highs, suggest the market reached oversold levels indicative of a turnaround (similar conditions were present near the January, February and August lows).

As always, individual stocks may differ in their technical status. Some early leaders have already reached their objective for the correction – in most cases it is the 200-day moving average. They may spend the rest of the month building a short-term base for further gains once the market catches the seasonal fever. Other stocks may use this time to continue the pullback toward their objectives. Watch for our upcoming list of buying opportunities in key sectors (to receive this list, register for a free trial at na-marketletter.com).

The autumn correction is doing its job. Indices and stocks are pulling back to their 200-day moving averages, support levels are being tested, the bulls are in retreat and the wall of worry is rising up again. An ideal conclusion to the current correction would be a fear-induced sell-off, finished by a sudden reversal.

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Technology Stocks Are in a New Secular (multi-year) Bull Market

In a recent piece, “Waiting for Godot,” we presented cyclical and technical evidence that the technology sector has already begun a new secular (multi-year) bull market – similar to the one that took place in the 80s and 90s.

The most compelling evidence comes from an abundance of huge base patterns in technology stocks such as Cisco (CSCO-N), Intel (INTC-T), Sierra Wireless (SW-T) or Teradyne (TER-N). Not only do these stocks have base patterns that could support significantly higher targets, but many of the names have already broken out from these patterns.

To take an advantage of this once-per-decade opportunity, we have started a new publication, NA-Marketletter Technology. Since its inception, our subscribers have already profited from numerous breakouts such as Intel (INTC-N, +28.2%), Sandvine (SVC-T, +42%) or Sierra Wireless (SW-T, +49%). Every week we publish new reports on stocks which could rally for many years to come.

We have just published reports on NVIDIA (NVDA-N) and Teradyne (TER-N).

To read these reports and others, sign up for a free trial at www.na-marketletter.com

 

 

Intel (INTC-Q) had a strong up-move

On April 8, 2014 we added Intel (INTC) to our BUY list at $26.91. Then, we published a report on the stock, which identified a major breakout from a large base formation and suggested an initial target of $35. The breakout did occur and the stock had a sharp rise to $34.65 for a 29% gain.

Here is our initial report on Intel available for NA-Marketletter Subscribers on June 13, 2014.

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Chart courtesy of stockcharts.com

Intel had a major breakout.

Intel has been trading within a wide horizontal trading range mostly between $10 and $26 for more than 12 years (see dashed lines). The recent rise to $27.96 (A) confirmed the breakout from this large area of accumulation and signalled the start of a new up-move with significantly higher targets.

Technical indicators including the rising 40-week Moving Average and the positive MACD confirm the bullish status. Use any weakness as a buying opportunity. Only a decline below $25 would suggest additional consolidation is required.

Technical measurements provide an initial target of $35 (a 25% appreciation potential from current levels). Significantly higher targets are also visible.

 

Please go to NA-Marketletter for the latest on Intel (INTC-Q) and other technology names. We just published reports on Advanced Micro Devices (AMD-N) and EMC (EMC-N).

 

 

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