The Memorial Day weekend marks the unofficial start of summer. It definitely felt a little odd this year, as none of the parades and celebrations were occurring. Usually people are out at barbeques in big gatherings, commonly playing field games- one of my childhood favorites was Tug O’ War. The U.S. stock market is now engaged in a classic Tug O’ War between the bulls and the bears, because both sides are very polarized at the moment. I have written previously about the tenets we followed at Zweig Mutual funds under the auspices of the late Marty Zweig:
- Don’t Fight the Fed
- Beware the Crowds at the Extremt
- Don’t Fight the Tape (or “the Trend is your Friend”)
Right now, with the market having surged off the bottom, the last six weeks has been more of a grind higher- a Tug O’ War, as the bears are fighting this rally all the way.
On April 15th, the SPY closed at $277.76, still well below its long-term trend line which has been falling since February. On Friday the SPY closed at $295.47, and as of this writing looks like it has a shot to close above 300 for the first time since the market swoon in February and March that saw the price tumble to below $223. Basically the last six weeks has been a choppy and slow grind higher as the bears are fighting the tape, but the market feels like it is breaking out to the upside. Although the PortfolioWise rating of SPY is neutral, you can see by HOLDINGS (Weight %) 23% of the ETF is bullish and 19% is bearish (the majority of stocks are still neutral), which means that on a fundamental basis things are improving. Anecdotally, we have also seen that just in terms of the news surrounding the coronavirus crisis and recent results around the easing of restrictions. Furthermore, as more data comes to light around who the at risk populations are and how to cope with the spread, there is further clarity on a path forward. There are areas of the market that have done very well, the teams that you would probably have bet on in the Tug O’ War in the field games. Let’s look at a few:
The Technology Select Sector SPDR fund, XLK turned bullish in PortfolioWise on May 4th, and continues to outperform the broad market. With 43% of the weighted holdings bullish in the system, and a tailwind of momentum, this ETF is made up of some strong pullers in the Tug O’ War.
A close cousin of XLK, ticker symbol XLC which is Communications Services Select SPDR ETF, also turned bullish in PortfolioWise on May 4th. This also has shown consistency in recent performance, and while over the last year has lagged XLK might offer slightly better “value” for a growth area of the market.
Lastly, maybe you just want to keep it simple and stick with a broad index that has consistently outperformed for years, and has a very bullish rating in PortfolioWise. It actually went from neutral to bullish on April 9th at roughly $200. It is not out of the realm of real possibility that it could make an all time high in the coming trading days. I recognize how remarkable it is that any index could be making a new high given the economic devastation the virus and policy response to it has resulted in. I go back to the three tenets though and realize that this Tug O’ War is being won by the bulls (at least for now) because they are not fighting the Fed, they see the “crowds” are bearish, and they are not fighting the tape.