The Best Sectors to Buy Right Now

by Sam Collins | March 7, 2014 2:57 am

Stocks ended on a mixed note Thursday, but the S&P 500 closed at another record high. A lower-than-expected jobless claims report contributed to the gains in the broad market, but weakness in biotech stocks drove the Nasdaq lower.

Biotechs, one of the strongest groups for over a year, were slammed Thursday. The iShares Nasdaq Biotechnology (IBB[1]) fell 2.7%. Gilead Sciences (GILD[2]) and Vertex Pharmaceuticals (VRTX[3]) each lost 3.6%. The decline appeared to be the result of profit-taking.

The European Central Bank (ECB) kept interest rates unchanged, and its president said that the bank is prepared to introduce new stimulus if needed. France’s jobless rate fell more than expected to 10.2%, and German manufacturing orders for January rose more than anticipated. The euro traded at its highest level versus the U.S. dollar this year.

Earnings from retailers continued to show weakness because of the severe winter weather. Costco Wholesale (COST[4]) fell 2.8% and Staples (SPLS[5]) fell 15.3% after both missed quarterly revenue and earnings expectations.

At the close, the Dow Jones Industrial Average rose 62 points to 16,422, the S&P 500 gained 3 points at 1,877, and the Nasdaq dropped 6 points at 4,352. The NYSE traded total volume of 3.3 billion shares, and the Nasdaq crossed 2.1 billion. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, advancers were ahead by 1.2-to-1.

DJI Chart
Click to Enlarge

Chart Key[6]

Following a consolidation that lasted almost a month, the Dow industrials appear capable of making a successful push past December’s closing high at 16,577. Momentum is lagging just a bit but is positive, MACD supports a move higher, and the 20-day moving average is on the verge of crossing up and through the 50-day — a powerful buy signal. Pullbacks should initially be limited to the line at 16,175.

DJT Chart
Click to Enlarge

The Dow Jones Transportation Average lagged for several weeks. This was a matter of concern because of its traditional role as a forecaster of future economic growth. However, Thursday’s pop through the top of a bull channel and the near cross of its 20-day moving average through the 50-day, along with strong momentum, are reasons enough to jump aboard the transports.

Conclusion: Powerful bull markets almost always fly in the face of unfavorable news. In fact, this widely accepted characteristic is one of the strongest arguments in favor of higher prices. Neither foul weather nor foul Ukrainian-Russian relations appear capable of slowing the advance of U.S. common stocks.

And even the lagging sectors like the financials and transports are taking part in the advance. It is time to buy quality stocks, especially those that fell Thursday on profit-taking, like biotechs. Their decline will more than likely be short-lived.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[7].

For a list of this week’s economic reports due out, click here[8].

  1. IBB:
  2. GILD:
  3. VRTX:
  4. COST:
  5. SPLS:
  6. [Image]:
  7. click here:
  8. click here:

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