The Dow Jones Industrials posted a 10-day winning streak this week, something that has not happened since 1996. And even though the other major indices are advancing at their own pace, some have wondered what the lag in the Nasdaq has been all about, considering that the high-beta, tech-heavy index has tended in the past to be the leader in the department of torrid advances.
But the markets tend to want to confuse as many people as possible most of the time and have put a hex on big technology companies like Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), Qualcomm (NASDAQ:QCOM) and F5 Networks (NASDAQ:FFIV). Indeed the only stocks holding the Nasdaq up at all are the biotechs, such as Celgene (NASDAQ:CELG), as well as Biogen (NASDAQ:BIIB) and Amgen (NASDAQ:AMGN).
Bears will point to the lag of the Nasdaq as an indication that the advance has been rather narrow, but I would point out that there is always some sort of flaw in every market advance’s narrative. You will hear people say volume is too low, or the right stocks aren’t leading, or valuations are stretched, or earnings growth is negative, or whatever. Yet, the reality is that every advance is flawed in its own special way. But just because it is flawed does not mean that it is not real. Those flaws are what give the advance texture, and create the famous “wall of worry,” up which every market climbs.
Click to Enlarge Another key point is that it is simply not uncommon to see stocks advance quickly after they have spent years in the tank or flat. Think about a stock like JP Morgan (NYSE:JPM), which just moved to a new all-time high in the past week, surpassing highs that were in place for 13 years. The company has been growing all that time, but investors lacked enough confidence to allow it to advance beyond the $47 level.
The difference now is that confidence is coming back. So you had a very long flat period that ought to be followed by a fairly fast and strong up period. This is what has just happened with Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG) and is now likely to happen with the DJIA’s bank components, which include JP Morgan, Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC).
Right now, playing the advance of the Dow through other positions such as 3M (NYSE:MMM), General Electric (NYSE:GE) and McDonald’s (NYSE:MCD), Coca-Cola (NYSE:KO), AT&T (NYSE:T) and JP Morgan is the way to go because these stocks are highly leveraged to advances in the market as money comes into their offices from investors. They are highly undervalued and are positioned to make a series of sensational moves higher.
InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days.
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