Market Alert - The Close

Rotation? Yes, there was rotation Wednesday. Rotation BACK to NASDAQ and SOX, and CONTINUING into RUTX and SP400. NASDAQ and SOX gapped off support and rallied well. RUTX again led the broad indices, absolutely screaming to a new high. SP400 had a new closing high in hand, just couldn't close escrow, at least on Wednesday.

SP500 and DJ30 trailed far behind the upside on the session, but notably money did not leave these indices. ALL indices rose as money moved hard into the small caps thanks to a tax proposal that is viewed as a positive economic stimulus and also has specifics good for small cap business -- though I note that the small businesses get the shaft again with their rates reduced, but to 25% while the big corporations get a 20% tax rate. Second class, at best, citizens in the eyes of the dictators in DC. The playing field was horribly skewed in favor of the big corporations in the Obama stimulus and its sweetheart deals and regulations that shut out the small businesses. Then the ACA killed small businesses while the big corporations received waivers. This will be a tough sell unless it TRULY favors small businesses over large ones.

But, the market appears to like it. It was up ahead of the news then when the details hit just after 1:00ET, stocks rallied for 2.5 hours before fading some in the last hour.

SP500 10.20, 0.41%
NASDAQ 73.10, 1.15%
DJ30 56.39, 0.25%
SP400 0.93%
RUTX 1.92%
SOX 2.36%
NASDAQ 100 0.96%

VOLUME: NYSE +13%, NASDAQ +6%. Volume back up over average on both exchanges as nice gains were logged. Definite accumulation off of the test of support.

ADVANCE/DECLINE: NYSE 1.3:1, NASDAQ 2.7:1. Quite surprisingly narrow breadth on the NYSE while NASDAQ breadth was solid enough.

Solid bounces off of resistance for the growth indices while RUTX continues its surge without a test. SP500 is still bumping the upper trendline from 2009, DJ30 holding the 10 day EMA in its test.

The big takeaway: money flew back to NASDAQ and SOX, and continued into RUTX and SP400. Importantly, DJ30 and SP500, while not posting great days, did not have money pulled from them. Rotation back to NASDAQ and SOX, but not yanking money from the large cap NYSE indices. Best of all worlds.

LEADERSHIP

Who benefitted? Financials, chips, transports, GOOG (but not other FAANG as they look to be forming bear flags), retail, smaller biotech and drugs, software.

Financial stocks gapped higher. C, GNBC, JPM, GS, BAC.

Biotechs: IMGN, IMMU, ARRY, AMRN. Big names held the line but did not break higher.

Retail: KORS, CONN, GPS

Chips: LRCX, AMAT, SMTC, SIMO, MU, ON.

FAANG: FB gapped upside and rallied on lighter trade. AAPL shows the same action. AMZN to a lesser extent. NFLX bounced some more off the 50 day but not much. Only GOOG looked strong.


Okay, so the tax plan was released and the hail storm in response has only just started. Frankly they should just forget fiddling and go with a form of consumption tax (not a VAT) as the Constitution originally envisioned. Everything was loused up with the income tax that was supposed to impact only a small percentage of the US but of course it was the equivalent of super crack for the power hungry in DC. That is not going to happen, so in short, get ready for a lot of wailing and gnashing of teeth and then a 'healthcare.'

But, the moves Wednesday were impressive though discount the FAANG and large cap tech moves for what they mostly were, i.e. relief moves. Chips do really look good as do many of the same groups that have received money of late. Makes sense because RUTX and SP400 are rolling now and were already rolling.

We started some upside (AMRN, AMAT, C, COHU, IMGN, TEX -- you can see the trend) and will start some more if the moves remain good, but in those areas that have received money and are still getting it, e.g. biotechs, chips, financial, software. As for the others, we will watch AAPL, FB and others make their relief moves and be ready to play the downside when money moved back out of them.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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