The markets suffered thru some rather dull price action today but that should be expected given the big move yesterday. Most traders are likely in wait and see mode, while those on the sidelines are looking for a dip to get a piece of the action. Also tempering gains today was a surge in the VIX from 11 month lows and a further advance in the dollar.
When examining the action in the VIX and the dollar today we also see more bullish signs to this market. In recent past, advances in the VIX and dollar has spelled trouble for stocks. However, today the markets took their advances in stride. Furthermore, the dollar is looking more and more like it is going to sustain this move above $80. The fact that the markets don’t seem frightened by this technical breakout is a net positive for stocks, and could be an early clue that the major inverse correlation between the dollar and stocks of the last few years is abating.
While the markets finished flat not all the sectors did. Energy (XLE), utilities (XLU), and the Dow Transports all finished down by more than 1%. Considering the market has been on a tear lately while these 3 components have failed to break their 2012 we would stay away from them. Instead we want to be exposed to the financials (XLF), consumer discretionary (XLY), and technology (XLK), all of which managed to break their 2012 highs yesterday. Attractive charts within those sectors that come to mind are BAC, JPM, WFM, VFC, AAPL, PCLN.
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