Markets Start The Year Strong

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Posted: Jan 03, 2018 10:09 AM
Markets Start The Year Strong

Just like that, the NASDAQ is back after floundering in the last couple of weeks of 2017. The index soared to a new record high in the first day of 2018 trading on Tuesday. In the process, the index is north of 7,000 for the first time, along with the breadth that was strong and convincing as well.

NASDAQ Breadth:

  • Advancers: 1,999
  • Decliners: 996
  • Up Volume: 1.47 trillion
  • Down Volume: 404 billion

The 1.50% gain was impressive and optimistic. I mention this because you are sure to hear someone quip about the NASDAQ on the eve of the tech-bubble burst. The index is at a new high. Keep in mind that seven of the top ten individual session percentage gains occurred in 2000-2001 at eight percent or higher. 

We are a long way from irrational exuberance.  Moreover, the NASDAQ is a perfect channel and this breakout suggests room for 8,000.

Small-Cap Love January

The year 2017 wasn’t a great year for the Russell 2000 compared to larger equity indices. However, it would seem the stars are aligned as this is historically a great month for the index, which should also enjoy outsized benefits from the new tax law.

The Russell 2000 is on the cusp of a major breakout, led by biotechnology last year, which carries its own special risk beyond macro factors that make it a hit or miss.

Conclusion

I’m optimistic after the first day of trading after the Dow surged out the gate, and then gave up 100 points in a holiday-like lull that could have easily seen the index flat or even lower for the session. The Market breadth (mentioned above) was even more encouraging.

Today’s Session

Equity futures are higher this morning as Wall Street issues scores of stock upgrades across several industries. One theme is bottom fishing, or buying stocks that underperformed in 2017. There is merit in this approach, but it takes more than simply underperforming. (Make sure to review our daily Portfolio Approach for reiterated or bold positions in names that have underperformed.)

Keep in mind, this is jobs report week and that always brings a degree of anxiety, so we could see the broad market get bumpy into Friday.