The so-called risk-on trade has ruled the roost in recent days. A return of risk appetite to Wall Street has resulted in a mass exodus from safe havens like U.S. Treasury bonds and the U.S. dollar as well as defensive sectors like utilities and consumer staples.
To the delight of the bulls, this flood of money has found a new home in offensive market sectors like technology, basic materials and financials. Not to be outdone, small-cap stocks have also changed their stripes from a laggard to a leader over the past week. All told, this shift in performance serves as a compelling piece of evidence supporting a more bullish backdrop to the U.S. equities market.
Click to EnlargeThe following sector performance chart nicely captures the past week’s rotation out of defensive areas and into offensive.
Provided this favorable turn of events persists, bullish setups should not only multiply but also have a higher chance of success. With dips being bought and rallies running long in the tooth, bull retracements and breakouts should perform well.
Yet another reason why traders should be celebrating this change in market character is that bull markets are altogether easier to trade than bear markets.
For starters they’re decisively less volatile. The absence of large adverse moves makes it easier to participate without getting your head handed to you from time to time. The day-to-day gaps that plague a bear market are also largely absent during these healthy conditions. This allows traders to sleep at night without fear they’ll wake up to a harrowing down gap the following day.
It remains to be seen how long this resurgence in risk appetite lasts. But, hey, while it’s here, why not unleash your inner bull and start taking advantage of the quality bullish plays that have been and will continue to cross your path.