The big indexes are up 30% from their March 9 lows, a number that would normally be categorized in a cinch as a new bull market. And yet skepticism abounds because it seems impossible that the value of companies could continue to rise in the face of a continued rise in the number of job losses, property foreclosures and loan defaults, even if it is at a reduced pace.
Can this streak continue, or will it hit a wall of resistance at the big indexes’ January highs and their 200-day averages or 10-month averages?
The quick answer is that the rally is probably almost done for certain sectors and regions and not for others. The evidence suggests that we have entered a period of sector rotation in which some groups of stocks will rise while others will flat-line or decline. This can be the most exciting kind of environment if you are willing to be nimble, but it can also be frustrating if you are dead set on buying once, gritting your teeth and holding.
The change in climate is going to come as a surprise to most folks because it is quite different from what we have seen since the autumn of last year.
Starting in September 2008, every sector, market cap group, commodity and region of the world collapsed in tandem for four months. Some defensive groups like health care, food makers and discount department stores were mild outperformers because they went down less than everything else, but essentially everything went down together through November 2008.
After the rise from that crushing low, some distinct differentiation began to emerge, as you can see in the chart above. The clock starts on November 20, 2008. The big U.S. and European indexes rose into December, flat-lined into February then fell heavily to a new low in March, with banks leading the slide to bone-crushing lows.
But this time, not every group followed that path.
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Some specialty and discount U.S. retailers like American Eagle (AEO), Chicos (CHS) and Hot Topic (HOTT) scampered higher into February and then rose dramatically.
Many Nasdaq 100 ($NDX) technology companies like Apple (AAPL), Cerner (CERN), Qualcomm (QCOM) and Google (GOOG), dipped in January but then flat-lined in February before rising smartly in March through this week.
Many big industrial and transportation companies like Dow Chemical (DOW), General Electric (GE) and Federal Express (FDX) fell extremely hard into mid-March and have recovered well since.
Many emerging and second-world markets rose steadily out of the November lows and never looked back, with some like Brazil (EWZ), Taiwan (EWT) and South Africa (EZA) pausing in March but never going anywhere close to the November lows.
Many large money-center and regional banks, such as Bank of America (BAC) and Fifth Third (FITB), were brutalized to death-defying lows near a buck in March and have since recovered briskly.
Differentiation: it’s a beautiful thing. It’s why it’s not appropriate to talk about "the market" as if it were a single unified entity. And it’s why it’s useful to develop the ability to trade like we do in Trader’s Advantage.
In the past few months, we’ve enjoyed big profits in swing trades in stocks as diverse as railroad Burlington Northern (BNI), women’s retailer Lululemon Athletica (LULU) and paper manufacturer Boise (BZ) as each group has swung into favor.
This article was written by Jon Markman, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
