Why are stocks moving sideways?
It's the uncertainty... I'm sure of it.
There's been a switch in the leadership of the market over the last month. That is to say, different kinds of stocks are driving it higher or lower.
Small-cap, housing, and semiconductor stocks reigned supreme in February as they moved higher. But now, the market is being led by utilities, consumer staples, and real estate.
Did you catch that leadership list? Do you know what they have in common?
They are all defensive sectors - places investors go to hide it all away during (or before) a market correction.
The confident up and down moves the major indexes had been making are now turning into a rather wimpy game of tug-of-war. We saw an advance in the S&P 500 all the way up to 2,850... only to see a quick reversal as traders shot into the market to take profits.
That's a timid move that's put us in another technical battle with 2,800. Not great.
Another contributor to the lack of direction? No catalysts.
Think about it: A month ago we were still riding a wave of earnings results that helped pull additional monies into stocks. Daily "trade war" headlines provided a constant stream of fuel for the markets' fire, sending it higher and lower.
In short, there was a lot more to look at if you were trading.
So, is this a market that you walk away from?
Not at all! And I'll show you why...
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Just Around the Corner: Big, Powerful Catalysts
Everything that's keeping the brakes on this market is going to get swept away - very soon - for a large directional move.
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And as is regularly the case, earnings will provide the catalyst needed to put today's sideways motion in the rearview mirror.
First quarter 2019 earnings season is right around the corner. The last earnings season started with the S&P 500 at 2,582, and now we're about 8% higher.
That's the kind of movement that can shake a lot of money out of the trees.
What's more, the way I see it, with the Mueller report behind us, the breathing room is there for the administration to be more aggressive with China in pursuit of a trade deal. That's a positive for the market.
Seasonality is working in our favor now, too; we're heading into the second strongest month of the year.
April is known for some healthy returns, as the S&P 500 averages returns of 1.4% for the month. Even better, the month generates gains 70% of the time! That's a hell of a tailwind to help stocks start moving again - and that's the kind of movement we want.
So, where's the best place to look?
Semiconductors are the only technology sector that has stood out as a no-brainer. Also, the financials have been beaten like like Rocky's heavy bag recently. These stocks got a massively positive reaction to their earnings only to see huge "sell the news" moves.
I'm doing some data studies on these stocks right now and running my famous "Best in Breed" screener.
So I'll have some recommendations to make here in Money Morning soon, and big, money-doubling picks for my Night Trader folks (click here to learn how to get my research; I'll likely be recommending a move tonight).
Just wait, it'll be fun!
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.