Market Alert - The Close

Bears get trumped again as market surges following State of the Union address.

The market marked time waiting for Trump's address to the nation and even got a bit fidgety heading into the speech. So much so the Dow was unable to make it thirteen straight record closes, thus missing a record in itself.

Well, there was no record streak of new highs Wednesday, but DJ30 certainly put in a new record high. With force. Indeed, all the indices reacted quite favorably to the President's speech, whether it was the content, the demeanor, both, or even something more.

SP500 32.32, 1.37%
NASDAQ 78.59, 1.35%
DJ30 303.31, 1.46%
SP400 1.67%
RUTX 1.94%
SOX 1.64%

VOLUME: NYSE -17%, NASDAQ -1%. Volume faded on the big upside move, but there is a 'but.' Faded yes, but Tuesday volume to end February was big. The volume to start March was still well above average on both NASDAQ and NYSE, thus stronger than the prior volume and showing plenty of buying.

A/D: NYSE 2:1, NASDAQ 3:1. Impressive on NASDAQ, but much weaker than you want on the NYSE with its many, many small and midcap stocks.


Impressive breaks higher by the large cap indices. SP400 was solid enough. RUTX managed a higher high, but just managed to scratch over the prior high. SOX? No new high for you; it bounced off the 20 day EMA, but not much more.

It was more of the Trump infrastructure and financial trade than a broad leadership move. Oh sure many stocks moved higher but the gains were more focused into materials, financial, and big household names such as AAPL. Even industrial machinery, while higher, was not evenly so. HON was great while CAT, CMI, TEX et al were good, but their patterns not great.

Indeed, it was more of a move higher with many stocks positive, but also many stocks not doing much to change the patterns carved out in the sessions prior.

Thus, the market gap was hard enough to try and play, and when many stocks gapped but then failed to move higher or did move higher but struggled to hold the move, well, we were not going to do a lot of chasing. Instead I would prefer seeing how this move is treated. Sure it will likely just keep on moving up; that is what this market has done.

Chasing at this point can be treacherous though; it can still just run higher, but we would prefer not to chase gaps upside. Interestingly, many of the non-infrastructure, non-financial stocks were up but then faded a fairly significant portion of their moves. How these stocks and indeed all stocks respond Thursday and Friday will be very important. The reaction to breaks higher and lower always is. What we will be looking for are opportunities to move in on stocks that gapped higher Wednesday and are testing good breakouts. Of course, that is if everything holds up, and of course this market certainly looks as if it wants to hold up for now.

Why? Well today BAC showed just how pervasive the upside is. BAC reported earlier in the week that its wealthy clients had been selling the move higher, believing the post-election move was exhausted. I can see how they felt that way when looking at market internals, sentiment, etc. But leadership continued to hold and push higher, with new leaders coming in and old ones coming back around.

Then on Wednesday morning BAC said that it believed that SP500 could hit 2450 because of a capitulation of bears. Meaning? Those clients that just sold are forced back into stocks to keep their money working for them. Bears are thus 'recycled' back into bulls, driving the rally higher.

In the final analysis I guess you can say that Trump pulled it off. The initial rally was on the belief Trump would cut taxes, reduce regulations, repeal the ACA, protect US industry, etc. Then there was a lull and Trump promised 'phenomenal' news with respect to taxes. The market kicked higher anew. Heading into the Stat of the Union worry crept back in that the Trump agenda would be stalled by democrats and some republicans who have been around longer than FDR ever dreamed he could hold office. Then Trump is calm, collected, well-reasoned, conciliatory, humorous. Presidential as many noted. How shocking. The market takes heart again and rallies because, after all, who could resist such a presidential call to action? Oh they are out there for sure, but the market was enamored with the words and delivery, so it delivered a big new break higher.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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