Markets concluded another week in robust fashion with the Dow gaining more than 200 points in back to back sessions. It is higher 7 of the 9 days so far in ’18 and all 7 were up more than triple digits except 1/3 which added 99 points. On a weekly basis all of the major benchmarks scored respectable gains with the Dow higher by 2%, the Nasdaq by 1.7 and the S&P 500 by 1.6%. The best performer was the Russell 2000 that rose 2.05%, edging out the Dow’s 2.01% move. I pay attention strictly to price action, but a headline did rise my eyebrows this morning with the huge inflows into mutual funds, as this is the “dumb money” coming into play. Could be FOMO, no one knows for sure, and we have to remember the January volatility in recent years and the month is now just half over. To add to the scratch your head feeling, the VIX was higher today. Looking on the VIX chart one sees the big moves above the upper Bollinger Band on 10/25, 11/15 and 12/1. Are we due for a fourth consecutive monthly spike like that into the low teens? If so be careful about much follow through as each of those occasions were very rapidly met with heavy selling pressure. Perhaps if could could much higher too. Keep some powder dry.
Looking at individual groups on Friday, at the expense of sounding like a broken record it was the cyclicals, energy, materials and financials that led that way. On a weekly basis it was energy that shared the top spot with the XLE advancing 3.3%, the industrials did the same this week, and that was on top of the prior week rising 3.8%. Of course it has the weak greenback to contribute to those lofty returns, but whatever the reason if one has had long exposure to the group they are more than satisfied. On the downside the utilities via the XLU, fell another 2.1% this week and the ETF is now lower 4 of the last 5 weeks, immediately following a prior 9 week winning streak. The last 3 losing weeks dropped 4.7, 2.6 and 2.1%, so the first 2 weeks of ’18 lose slumped more than 2%, and just to give you a comparison in ALL of ’17 the ETF registered just two weekly CLOSES greater than 2%, the weeks ending 6/30 and 9/22. Honorable mention must be given to the discretionary sector with the XLY recorded back to back 3% plus weekly gains, even in the face of rising crude.
As the XLF gets magnetically pulled to the round 30 number it is pulling many of the names in the space with it. We are big proponents of the round numbers, especially the very round ones like 10, 20, 50 and par, gibberish for 100. Stocks are likely to either find support or resistance at these figures, and it is even better when one sees a name find support at one of these numbers which was previously resistance. Below is the chart of HDB and how it was profiled in our Friday 12/22 Game Plan. Notice how the 100 number was a wall between last August-October but has since burst through the ascending triangle that aligned with that figure giving the pattern extra significance. It has now recorded four consecutive weekly CLOSES above 100 and is gradually grinding higher which is what older investors like myself tend to favor, instead of the wild climatic moves. The measured move, of course not precise, still has roughly another 10 handles to climb.