Monday, May 01, 2006
If you merely focus on the index charts from a weekly perspective, we are right at support and ready to run higher. This is especially true on the S&P 500 and Dow. The tech sector however, while also at support, is showing signs of slowing momentum. We believe that this sector may once again lag the blue chips. Likewise, the small cap, Russell 2000 index is vulnerable for a correction. At this time it looks like institutional money is making way for a safe haven in the high liquidity blue chip stocks and it is avoiding high beta small caps and tech, but not necessarily selling these two sectors. Many commentators are looking for a rotation out of the energy and metal stocks as they believe commodities are overdone and likely topping. The truth is that the only true bull markets we are seeing right now are in energy and metals and trying to pick a top in a bull market is a recipe for pain. Market commentators will eventually be right in their calls for a rotation back into stocks from commodity-driven profits, but we believe that it is too early to make that call. We are seeing a great deal of strength in these two sectors at this time.