Home » Stock Market Sentiment Is Turning More Bullish – For The Week of May 21

Stock Market Sentiment Is Turning More Bullish – For The Week of May 21

Stock Market Sentiment Is Turning More Bullish – For The Week of May 21

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The bull run in stocks was put on hold last week, but the current run is likely not over. In fact, there appears to be a clear separation that has taken place since the start of May. We find that Biotech and Semis are the leaders this month, with each up by over 7.5 percent. Followed by a group of Technology, Energy, the Small Cap Russell 2000, and Materials all up about 5 percent. Meanwhile, the S&P 500, Financials, Health Care, and Discretionary are all up about 1 to 2 percent. Finally, Utilities and Staples are down on the year.

XLK Chart

XLK data by YCharts


What Is The Market Telling Us

It tells us how the market is feeling on a couple of topics. The underperformance of the utilities and the staples is an apparent concern by investors regarding the more interest rate sensitive portions of the equity market. As interest rates rise, dividend yields must increase, and that puts downward pressure on the stock prices in the group. Additionally, it would also suggest a rotation out of the defensive part of the market.

Risk On Back

Meanwhile, the risk-on parts of the market, Biotech, and Semis are in favor and that would suggest that investors are feeling more comfortable moving back into the riskier more volatile parts of the market. It would indicate to me that if these two sectors continue to perform well, the market will continue to rise.

Even the second tier of leaders, in Technology, Energy, Small caps, and Materials are another layer of risk, and again it too supports the continued rise in the broader S&P 500.

Looking at The Semis

When we look at the semiconductors, AMD has been the best performing stock this month rising by about 20 percent, followed by Qorvo, Micron, Teradyne, and Skyworks.

Teradyne

Teradyne’s significant gains in May are more of a bounce back, because even with the 15 percent rise thus far in May, shares are still down by nearly 25 percent from their peak earlier this year. The poor company guidance led to be a big gap down in the technical chart. It seems like the stock wants to fill that gap back to around $40, but one must worry that once filled, the stock may continue that trend lower.

Qorvo

Qorvo has been a stock stuck in a trading pattern of up and down since the start of 2017. After a significant gain; shares could be heading back the other way.

qrvo

Micron

Micron gave us the big breakout, but to this point, resistance at $54 has proved challenging.  But what I take as a positive is that that stock has been rising on more volume, and the trend, for now, continues to be higher. I still think we reach around $61.50.

Waiting On Qualcomm/NXP

It will be interesting to see given the setup in these stocks if there shall be a rotation into other parts of the semiconductor space. Remember, we are still awaiting word on the Qualcomm/NXP deal from the regulators in China, regarding a potential approval. If that should happen, I think the sector will get an extra jolt, in a sign that that trade tensions has been easing between the US and China.

Staying Hot

For the most part, we need to continue to see the risk on the part of the market stay hot, and investors continue to move back into these parts of the markets.

Perceptions and Mood

At this point, much of where stock prices go will be driven by sentiment, mood, and perception more than anything else. Fundamentals are solid, with GDP for the second quarter tracking at 4.1 percent, according to GDPNow, through the mid-way point of the quarter. Meanwhile, earnings season for the first quarter of the year were very strong.


 

Strong Fundamentals

According to Dow Jones S&P Indices of the 91 percent of the companies in the S&P 500 to have reported results 77.25 percent beat estimates, while sales grew by about 9.5 percent versus a year ago. The S&P 500 is trading at just 16.7 times 2019 earnings estimates of $163.33 per share.

It is a robust fundamental setup, while the bulls appear to be coming back.

Mike

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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

© 2018 Mott Capital Management, LLC.  Use, publication or reproduction in any media prohibited without the permission of the copyright holder.

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