Just another day in Wonderland as stocks close in the green, but the Dow Jones Industrial Average and S&P 500 hit stall speed. Volume jumped across the board, perhaps institutions are trying to get allocations ahead of the Thanksgiving holiday. Economic data continued to decent with the exception of consumer confidence. However, home prices continue to push higher and the Richmond Fed manufacturing index showed decent growth. What we took notice was the close on the Dow and S&P 500. While the NASDAQ was able to hang onto most of its gains the same could not be said for others. Despite the stalling action the NASDAQ and Russell 2000 closed near the top of the day’s range and we continue to stay long this uptrend.
We had mentioned a few weeks ago how good the financials were looking and poised for a breakout. Since then the XLF and others continue to make strides, but there is a new group breaking out. Whether or not there is a bubble in housing XHB broke out today along with a few homebuilding stocks. Early in the summer we pointed out how the group was weak. It wasn’t until early fall we went neutral and pointed out homebuilders were poised to move to the upside. Today’s breakout shows why it pays to follow price and ignore the noise like bubble talk.
It is interesting to see how many people are pointing out 2014 estimates for S&P 500 earnings and guessing what the multiple will be. I always find this amusing because these guys tend to be wrong and quite often. Majority of EPS growth over the past few years has come from stock buybacks. EBIDTA has been shrinking, but in the end price is what matters. No one can predict if EBIDTA will grow or if buybacks will accelerate. Leave all this crap behind and focus on price.
Tomorrow’s market will likely be quite active in the morning. Enjoy the fireworks and stick with the plan. Ride your winners and cut your laggards!
