The stock market had a positive day today in response to a few piece of positive news. The Financial Accounting Standards Board loosened the mark-to-market accounting rules which some say have severely hurt banks over the last year. Plus, Factory Orders came out better than expectations which increased optimism. The last piece of significant news today was that the European Central Bank cut its interest rate target.
From a technical perspective, the NASDAQ (chart below), which has been the leading index in the recent rally, hit two-month highs today. The NASDAQ is commonly believed to be a growth index. It broke above the resistance of 1600 and is approaching the next area of resistance its Jan. highs at 1665. Volume was robust which makes the move more significant. The recent rally has shown some bullish characteristics: Upward moves in the market have been on increasing volume and pullbacks have been on lighter volume. That means major market players (Pension, Mutual, and Hedge funds) are participating in the market more on the upside and when the market sells off it does so with less selling pressure.
Historically when the stock market comes out of a bear market the leading sectors will usually be growth oriented sectors. The stock market being a forward looking mechanism will anticipate what lies ahead and if you are currently in an economic contraction the next part of the cycle will usually be an expansion. Growth stocks usually perform well with the perception of upcoming expansion in the economy, thus if growth sectors lead it’s usually a bullish sign. Some of the growth sectors that have recently broke into new 4-month highs are Technology (chart below), Retail (chart below), Semi-conductors, Telecommunication and Internet Commerce.
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