After the market has a big move like the one the election just created, the next step is for it to be tested with a correction or pause.
This test begins to reveal which sectors or stocks or asset classes will be the next winners or losers.
The test of the Trump rally began last Monday, Nov. 28th, and in yesterday’s commentary I reviewed one way to use the Inside Day pattern to benchmark the progress of a market reversal.
Today the market followed through on that reversal, and we learned that the Trump rally market rotation remains in full force. The new market leaders demonstrated their strength again.
It’s often hard to believe that the strongest areas will continue to get stronger when other areas of the market seem to offer a better value as viewed by their lower price, but most of the time the markets are no different than the common phase, “the rich get richer…”
Fortunately for the astute trader or active investor, the market does rotate which sectors will enjoy the leadership roles, and right now we’re seeing that rotation play out.
Rotation is good because provides new life to a bull market and new trades in mega trends for the traders who know how to catch them.
If we focus on Mish’s Modern family, the most important news of the day is that IWM broke out to new highs with the support of its new partners in leadership IYT and KRE. This is a good sign for the longer term prospects of this rotation.
Furthermore the pre-election all star, SMH, continued to recover from the beating it took during its test. This is also bullish, but unfortunately , the same can be said for the QQQ.
Keep your eye on the QQQ (important levels are noted below). It does not need breakout to new highs for this market to go higher, but if it breaks down it will be a problem.
Additionally, the consumer as measured by Retail or XRTr, continued to bounce back with a nice strong day today. It’s not back over its Nov. 25th highs, but it’s acting like a leader. Keep a close eye on XRT, it’s sitting on a full year of basing action that could turn it into a big year-end bonus for the Bulls.
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