Stock Market Early Morning Insights – March 18, 2016

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The strength yesterday was primarily in oil, transports silver, and small-cap stocks. On the other hand, the healthcare stocks, especially the Biotech and Specialty Pharma stocks are lagging. The XPH, the SPD are S&P Pharmaceuticals ETF was down 2.9% yesterday, and the XLV, the Healthcare Select Sector SPDR, was down 1.2%. The Biotech ETF managed to eke out a gain of only .3%.

A look at the top 50 GIR shows several new groups dominating the list which contains groups such as Fabricated Metal and Hardware, Electrical Power Equipment, Infrastructure Construction, Industrial Automation Controls, Cement and Aggregates, and Building Subcontractors. These are groups which I rarely see in the top 50 GIR. To me, this indicates a change in the structure of the market.

Many of the stocks on the move yesterday have very poor earnings, and if you are a fundamentally based investor, you would not likely look at the stocks. Take a close look at the pie slices of the stocks in groups moving to the upside and you will see many of the groups that I listed above. It seems to me that money is looking for a place to flow, and fundamentals do not matter.

For example, the Steel Producers index was the most in demand group yesterday based upon my Demand Combo. Most of the stocks in this group now have either A or B accumulation, but if you look at the fundamentals, you would not touch them. This is one of the huge advantages that HGSI Investor gives us. I mentioned the Steel group a few weeks ago when it was beginning to move, and it was just a technical move. The Steel Producers are pictured below and you can see how this group rose from being one of the weakest groups to the one most in demand in just a matter of weeks. Over the past four weeks, it went from the number 75 position versus the SPX, to the number 2 position as money flowed into the group.

As you all know, the Dow Jones Industrial Average is now positive for 2016, and I am not seeing any slowdown in momentum. Stocks are overbought, there is no doubt about that, but until we see deterioration, we have to remain on the side of the Bulls.

One thing I try to do is to not pay attention to another people are saying about the markets. Market opinions are a dime a dozen, and are worthless as soon as they are uttered or written, so as an investor we have to constantly be on the lookout for changes in market structure.

Intermarket analysis is key to knowing what’s going on in all time frames. The dollar index has had a huge effect on stocks, oil, gold and bonds the past few days. When the Fed made its views public on Wednesday, the dollar collapsed causing massive reactions in interrelated markets. All of this information is available to you on your trading platform, especially if you use thinkorswim or Trade Station.

With that said, gold futures reversed yesterday to close below their open, and are weak again today, but this could be in reaction to the dollar index which is showing some strength. Gold is overbought, and is due for a rest.

With the strength in the market yesterday there was a shift away from some of the Canary stocks. Facebook was down, Amazon was down substantially, and Netflix and Google were about even. The exception was Tesla which continues to build the massive V formation. Tesla is up another four dollars in the premarket.

Momentum is all on the side of the Bulls right now.

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