Schwab Live: Midweek Market Trend for January 18, 2017

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Several of the sectors that led the market in the post-election rally have lost some momentum of late.  The financials, for example, have gone sideways for the last month (Figure 1). 

Source: StreetSmart Edge®

 This action is not necessarily negative.  Overbought conditions can be eased by an actual pullback in prices, or by time and sideways action, which is what I think is going on here.  The financials are quite strongly correlated with the yield on the 10-year treasury (figure 2). 

Source: StreetSmart Edge®

 After surging since the election, the 10-year yield has pulled back a bit, but seems to be holding around the 2.3% level (Figure 3). This area offers both horizontal support as well as well as representing the 23.6% retracement level of the move from the July lows (A).  The financials should continue to act well as long as we don’t see a major break in the ten year yield.

Source: StreetSmart Edge®

The materials sector has been trading similarly to the financials (Figure 4), as has energy (Figure 5).

Source: StreetSmart Edge®

Source: StreetSmart Edge®

So where has there been some recent strength?  One needs to look no further than technology (Figure 6).  As is clear by looking at the relative strength line (A), Technology has outperformed so far in 2017. 

Source: StreetSmart Edge®

The sector has been pushed higher by strong action in two industry groups.  The first is computer software and services (Figure 7), Notice how the industry has both outperformed the overall market (A) and the technology sector itself (B) since the beginning of the year.

Source: StreetSmart Edge®

 The second industry group is the big-cap internet stocks (Figure 8).   Again notice how it has outperformed both the market (A) and the sector (B). It will be interesting to see if it can join the software group at new highs soon. 

Source: StreetSmart Edge®

 The combined effect of these two groups propelled the Nasdaq 100 to a new all-time high on January 13th (Figure 9).

Source: StreetSmart Edge®

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