Weekly Update: This is the Time to Buy
Good evening, and welcome to this week’s edition of Stealth Trades!
As we have been saying since the October bottom, this is the time to buy.
In last Friday’s update, I showed you this chart highlighting the consolidation we saw the week prior and the expected follow-through rally.
After such a hard and fast move higher, the market needed to digest the move before continuing higher.
As expected, it did just that. Here’s the updated chart…
Stocks rallied again this week like clockwork. The S&P (+2.3%), Nasdaq (+2.1%) and Dow (+1.88%) all booked strong gains.
But small-cap stocks, tracked by the Russell 2000 index, were the clear standout. The Russell soared 5.4% this week in its best performance in more than a year.
Even the equal-weighted index, RSP, notched a 3.3% gain.
These are all good signs. Unlike some of the previous rallies we have seen lately, this run was not led by a small handful of mega-cap stocks.
When RSP outperforms SPY, it means there is broad participation. And market internals are confirming the validity of this move.
The net new highs indicator is again painting green. For the first time since August, we have seen more stocks making new 52-week highs than lows three days in a row.
The last time we saw a day of more than 90% upside volume was in early May.
We have already seen two such occasions in November…
The percentage of stocks above their 50 and 200-day moving averages continue to rise as well. 56% of stocks are now in short-term uptrends and 41% are in long-term uptrends.
I expect to see these figures trend higher as fear leaves the market and FOMO pulls money off the sidelines and back into stocks.
Our Traders Agency Market Health Gauge is bright green signaling a very bullish environment, and the put/call ratio buy signal we pointed out at the end of October has panned out beautifully.
One major theme we are seeing play out right now is a flight to homebuilding stocks. Over the last 30 days, the top performing sectors have been home builders and building products.
The logic makes perfect sense…
The Fed has stopped raising rates. Wall Street believes the period of aggressive hikes is over. And this week’s CPI report showed inflation of 3.2% compared to the same time last year. This was below analyst expectations and a sign the Fed’s actions are working, and additional rate hikes will likely not be necessary.
Further evidence of this can be seen in the 10-year bond yield.
Rates have fallen from 5% to 4.4% in the last 30 days, and many banks expect to see cuts in the first half of 2024.
Falling interest rates are good for stocks, but especially homebuilders. With limited housing supply, new construction has been the only game in town. But record high mortgage rates have caused many would-be buyers to pump the brakes.
If rates continue to fall as forecasted, this will fuel the already hot housing boom and send these stocks much higher.
In fact, this could very well be a leading theme of the new bull market.
I sent a short video update to you about this via SMS on Wednesday. Here’s the link in case you missed it.
I am keeping a close eye on the stocks in this group – both homebuilders like Dream Finder Homes (DFH), D.R. Horton (DHI), and Toll Brothers (TOL) as well as construction materials names like Builders FirstSource (BLDR), Eagle Materials (EXP), and Installed Building Products (IBP).
We added a few of these in my Alpha Stocks service this week. We also continue to hold the nuclear stocks I mentioned in weeks prior.
Encore Energy (shown below) just made a new 52-week high.
Cameco (CCJ), another nuclear name we own, is also advancing nicely.
For next week, don’t be surprised if stocks take a breath here. The Nasdaq is sitting at its highs of the year and the S&P is less than 2% away.
It is not unusual for the market to stall at a previous high before continuing its advance.
If stocks pullback, I expect it to be shallow and temporary. Use the opportunity to buy leading stocks in top-performing groups in anticipation of the next wave higher.
Best wishes for your trading,
