Stocks, climbing a wall of worry that includes 8% inflation, a looming mountain of Fed rate hikes, rising bond yields, and the uncertainty of a war, just put in the greatest seven-day Nasdaq advance since the aftermath of the '20 bear market.
We are giving the market the benefit of the doubt because the market's action trumps everything else. Recall that the market is a discounting mechanism which prices, or discounts, the coming 6-12 months into today's prices. It simply "sees" better than us mere mortals.
The message it appears to be giving is that the economic slowdown that it is forecasting will over time reduce inflationary pressures while avoiding recession. And growth stocks do best amid a slow-growth economy.
I am skeptical that growth, which is the most sensitive sector to higher inflation and rising rates, will lead. A more likely scenario based on historical precedent would be for cyclicals to lead before transitioning to defensive stocks.
Otherwise, it is logical to expect the averages to come in during the immediate term so as to work off their overbought condition.
At present, there are two areas of interest: commodity stocks and a few semiconductor issues. Beyond that, there are a few one-offs like Tesla (TSLA) and NVDA (NVDA) which are both partway up the right sides of their bases.
There are no textbook 5-7 week basing patterns among the leaders. To play this move in the market requires one to take positions in abbreviated, two-week patterns. These are higher risk entries and may not be for everyone. We have seen them work numerous times in the past as the market has emerged from pullbacks. With this in mind, a few of these were added to the Focus List recently.
More opps can be expected if and when this rally unfolds.
The following name is believed to be the most attractive for our strategy of speculation in the $13+ market. Click on the charts to zoom in.
Alpha Metallurgical Resources (AMR)
In summation, this is a go-slow environment. It is more suited to pilot buys than a back-up-the-truck mentality. As noted recently, this is a playable rally in a bear market, until proven otherwise.
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