The stock averages rallied fiercely Tuesday, setting the tone for an impressive comeback after the Nasdaq dropped 7.9% over nine sessions.
We must remember that history's biggest single-day rallies occur as short-covering bounces in a bear market.
For this reason, it is helpful to analyze each day of a rally following a decline. On that score, breadth has been quite positive thus far.
Unfortunately, due to the broad and deep setbacks incurred by the growth sector in November, there are very few, if any, pattern setups fit for our consumption. This is what one would expect following the amount of damage done to many chart patterns.
This predicament may appear foreign to less-experienced speculators, who have become accustomed to a new rally in the averages being led by stocks bouncing right back into new-high ground like tennis balls.
Leadership is seen in semiconductor and homebuilder segments, among others. That alone is a concern. The semis do not have constructive patterns, for the most part. To play these, one must put up with chart patterns that are less-than-attractive. This is the price of admission in order to ride the group that is snapping back the quickest.
I am skeptical that this market rally will be something glorious, with growth issues breaking out of bases en route to substantial gains. The reason has to do with the backdrop. The futures market now assigns a 56% chance of the Fed's first rate hike occurring on May 4.
This is just five months away. Can the growth sector mount a playable advance between now and then? That is the $64,000 question.
Of course anything can happen between now and then. The best thing that could happen would be signs of slowing in the economy and inflation. Enough so that Powell would take his foot off the rate-hike brake.
This is all speculation on my part. We only use the technicals to guide our activities in the market.
The following names are believed to be the most attractive for our strategy of speculation in the $13+ market. Please note that these patterns may leave something to be desired. My suggestion is to take pilot buys and see how they perform before committing full-sized positions and otherwise loading up on them.
If the growth sector is for real, we will know it by new bases being formed. This may take a while.
Direxion Semiconductor Bull 3x ETF (SOXL)
Navitas Semiconductor (NVTS)
In sum, the averages act well. Growth issues are not well-represented in the market's leadership. We must be patient until the base-building process gets going in earnest. Until then, let's keep an open mind and remain flexible about what could happen.
Introduction to the service video (38:00)
Money management and risk management video (20:27)
Bread and butter pullback video (11:10)
Bread and butter pullback: Pt II video (15:09)
Bread and butter pullback: Pt III video (31:48)
Bread and butter pullback: Pt IV video (30:16)
Short-selling video (25:53)