Markets rallied yesterday on higher, above average volume as the European Central Bank suggested that it might expand its economic stimulus plan. With the weakening global economy, expect central banks to remain addicted to the QE morphine drip. Indeed, China today announced it will cut interest rates 25 basis points. Futures rallied strongly on the news.
At today's open, the NASDAQ Composite should gap up through its 200-day moving averaged helped by tech juggernauts Amazon (AMZN), Alphabet Inc (GOOGL), and Microsoft (MSFT), all of which reported strong earnings and are gapping significantly higher in pre-open trade. NASDAQ futures are outpacing S&P futures at the time of this writing as all three tech stocks are weighted in the NASDAQ-100 index as follows:
Microsoft Corp (MSFT) 7.483%
Amazon.com Inc (AMZN) 5.153%
Alphabet Inc (GOOG) 4.381%
A number of medium quality stocks had pocket pivots in yesterday's trade which implies market internals are shaping up, but as members know, we focus on the highest quality stocks on a risk/reward basis with leading fundamentals and technicals. We have seen a few of these do well such as MANH, SBUX, LGIH and IPHI. We could see a growing number of leading names start to perform as we did earlier this year, despite the trendless market. So should the market resume its trendless ways, that is never an excuse for an investor to take their eye off their stocks, watch lists, and screens.
Volatility which had been mostly noise is cleaning up for the time being, thus the path of least resistance for now is up, as discussed in today's Market Direction Model (MDM) report. The Volatility Model, for now, will remain in cash as its risk/reward given its more volatile ETFs and shorter term horizon is not optimal as of yet. That said, this could quickly change.
IT consultant Cognizant Technology Solutions (CTSH) had a pocket pivot breakout. Keep in mind it has been better in this QE-driven market environment to wait for a constructive pullback instead of buying on strength. Pretax margin 20.6%, ROE 23%, earnings and sales are accelerating, group rank 3.
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