Stocks Fell Yesterday, But Did Something Incredibly Bullish By This Measure

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QQQ Traders Beware: Money Is Going to These Other Parts of the Market

Stocks just accomplished something very bullish, despite having their worst day in almost two months.

At least 220 members of the S&P 500 hit new 52-week highs, according to TradeStation data. That’s the biggest number since the data series began in least 2007. Some of the prominent names included Bank of America (BAC), Home Depot (HD) and Exxon Mobil (XOM).

The overall index still lost 1 percent of its value — its biggest decline since March 18. Weakness in major Nasdaq stocks like Tesla (TSLA), Facebook (FB), Amazon.com (AMZN) and PayPal (PYPL) explain the dramatic split.

The price action seems consistent with the shift toward value stocks and away from growth stocks. Value stocks (like financials and energy) stand to benefit from the economy reopening and interest rates increasing. Just the opposite is true for growth stocks (like e-commerce and software) because many profited from the pandemic and now are slowing down. High valuations make them less attractive when bond yields increase.

TradeStation index tracking the number of new 52-week highs in the S&P 500 ($52WHSP), daily chart.

Despite the shift away from technology and the Nasdaq, Cisco Systems (CSCO) and Oracle (ORCL) managed to hit new highs yesterday. But the real story is mostly focused on old-fashioned companies like steelmakers, railroads, banks, homebuilders and health insurers.

Small Caps and Bonds

TradeStation’s precalculated indexes also showed that 248 members of the Russell 2000 index (IWM) hit new 52-week highs yesterday — the most since mid-March. Traders may want to watch for signs of IWM regaining strength because it often outperforms when the economy is recovering.

Yesterday saw another interesting move in bond prices, with the iShares 20+ year ETF (TLT) falling the most in almost two months. That could accelerate the shift toward value stocks, especially financials that benefit from a steep yield curve. The reason is that bond yields rise when their prices fall. Higher bond yields let banks earn more money from lending. It’s also potentially bad for growth stocks because of their high multiples.

Separately, Factset reported that first-quarter earnings are on pace to increase by 49.4 percent. It’s more than twice the growth estimated at the end of March, and would be the highest reading in 11 years.

In conclusion, major rotation continues in the market. It’s likely difficult for investors heavily focused on tech, but new areas of leadership have emerged. Want to learn more? TradeStation is offering an educational session next week on finding opportunities in any market.

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