Stock market breadth and sector rotation

Naeem Aslam Zaye Capital Markets

Sector rotation is the key theme when it comes to the US stock market as investors continue to sell their positions in tech stocks and move their money in more cyclical sectors. All of this is happening at a time when coronavirus cases are going through the roof over in the US and investors are concerned that there could be some restrictive measures announced very soon.

The Asian stock market continued their surge while tech stocks came under selling pressure. The ASX 200 index closed with a gain of 1.27%. The Korean Kospi index advanced 1.35%, while the Nikkei index surged 1.78%. The Shanghai index declined by 0.53%.

Dow Jones and S&P 500: Market Breadth

The Dow Jones’ market breadth gained momentum yesterday. 87% of the Dow Jones stocks traded above their 200-day moving average. This is a change of +4% from a day earlier.

The S&P 500 stock breadth became stronger. 83% of the shares traded above their 200-day moving average. This is a change of +8% from a day earlier.

Dow Jones Futures Today

The Dow Jones futures are trading higher by 100 points today. In terms of economic data, investors will be looking at the MBA mortgage application (WoW). The previous reading was 3.8% and any number which is better than the previous reading will confirm further strength for the US housing sector.

The Dow Jones futures are trading above the 50, 100 and 200-day SMA on the daily time frame which confirms that uptrend is in place. Having said that, the Dow Jones really need some help in order for the price to go beyond the highs of Monday. For the time being, it seems that consolidation is the way forward. The resistance is at 29993 and the support is at 26219. The RSI is also approaching close to the oversold zone - currently it is at 60.1.

The S&P 500 futures, which represent the broader stock market, are showing much weaker price action as compared to the Dow Jones. The price is trading above all the important moving averages such as the 50, 100 and 200-day simple moving average. The resistance is at an all-time high which is at 3667 and the support is at 3429.

Stock Market Rally

The S&P 500 stock index gave up some of its gains yesterday; the index fell by 0.14%. The information technology sector led the index lowerr- three out of 11 sectors closed lower.

The Dow index continued to move higher; the Dow stocks moved the index higher by 0.90%. 8 shares of the Dow fell, and 22 closed higher.

The NASDAQ composite, a tech-savvy index, closed with a loss of 1.37%.

S&P 500 Leaders and Laggards: D.R. Horton and Carnival
D. R. Horton stock contributed the biggest gain, soaring 9.13%. Carnival stock was the largest drag; it fell by 13.1%. The S&P 500 stock index is up 9.7% so far this year.

Dow Jones Leaders and Laggards: Boeing and Salesforce
Boeing advanced higher by 5.2% and was the biggest mover for the Dow, while Salesforce stock declined 4.48%, the biggest drag for Dow Jones Industrial Average index.

Author

Naeem Aslam

Zaye Capital Markets

Based in London, Naeem Aslam is the co-founder of CompareBroker.io and is well-known on financial TV with regular contributions on Bloomberg, CNBC, BBC, Fox Business, France24, Sky News, Al Jazeera and many other tier-one media across the globe.

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