200 Days of Stock Market Drama
Investors emerged from their fallout shelters yesterday and grabbed all the shares they could carry.
The Dow jumped more than 370 points while the Nasdaq Composite led the way higher with a gain of almost 1.5% on the day. The S&P brought up the rear with a 1.3% gain.
Of course, I’m now obligated to update you on the latest hype surrounding the major averages as they dance around their respective 200-day moving averages. The Dow was the first to clear its longer-term moving average. It has now retested and bounced higher.
Meanwhile, the S&P continues to chop directly below its own 200-day, offering up plenty of fodder for the financial press.
But a clean break of this magic line is no guarantee stocks will soar to new highs — just as a move lower here doesn’t mean a total market meltdown will follow. If trading was this easy, we’d all be billionaires.
Instead of fixating on this so-called line in the sand, let’s dive below the murky surface of the major averages to see what’s moving the markets this week.
Despite yesterday’s rally, the Russell 2000 remains well below its own 200-day moving average. But the small-cap index is making up for lost time this year.
Small-cap stocks were dead money walking during the fourth quarter correction. The Russell’s quick September swoon was our first clue that something might be wrong in the markets. Just a couple of weeks later, the meltdown officially started.
Naturally, speculative small-caps were some of the hardest hit stocks of the correction. But they’ve also posted some of the strongest snapback moves since the market bottomed in late December.
In fact, despite lagging the major averages during yesterday’s rally, the Russell 2000 is soundly beating its large-cap cousins so far this year:
As of yesterday’s close, the Russell is up more than 14%. The S&P 500 is up just about 9.5% over the same timeframe.
As I said all the way back in November, there’s a good chance small-cap performance will tip us off to the start of a new rally. That’s certainly been the case so far.
Meanwhile, homebuilder stocks are soaring.
The iShares U.S. Home Construction ETF (NYSE:ITB) jumped almost 4.5% yesterday as investors piled into these beaten-down stocks.
After a blistering rally off its holiday lows, this home construction ETF is now fighting toward 5-month highs. Remember, these were some of the worst performing stocks on the market last year. Unlike many sectors, the homebuilders were cratering well before the fourth-quarter correction began. They still have a lot of work to do to make up these losses.
But that’s not stopping speculators from jumping into these stocks. Lennar Corp. (NYSE:LEN) and DR Horton Inc. (NYSE:DHI) were two of the industry’s biggest movers yesterday.
Finally, a quick update on our recent trades:
Lululemon Athletica (NASDAQ:LULU) jumped out of the gate yesterday and never looked back. By 9:45 a.m., the stock was powering toward our buy limit of $151.50. It finished the day above $157, gaining more than 5% by the closing bell.
Don’t fret if you missed this entry (or if you opted to jump in for a few cents more than our buy limit). This trade is starting off on the right foot — and I’m beginning to see more breakouts sticking in this market of stocks environment. That’s a bullish sign.
Nike Inc. (NYSE:NKE), a Dow component that we’ve been involved with since January, is extending its breakout move this week. It’s now just a little more than a buck away from breaking through to new all-time highs. If it keeps this up, you’ll be sitting on double-digit gains in no time.
Meanwhile, more of your strongest trades continue to march higher. Cheap retail standout Dollar General Corp. (NYSE:DG) marched to new all-time highs during Tuesday’s session. Long-term position PayPal Holdings (NASDAQ:PYPL) has shaken off recent analyst downgrades and is also pushing toward new all-time highs:
Futures are pointing to a higher open today. Let’s see if these red-hot trades can extend their gains…
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