Stocks started the week on the right foot, that’s good. However, the NASDAQ is still hugging its 50-day moving average and needs some more liftoff for us to feel comfortable being on the bullish side of the market.
As our regular readers know, we view the NASDAQ as the Mary of the markets; where it goes the other markets are sure to follow. To feel better about the market’s prospects, we’d like to see the NASDAQ close above last Thursday’s intraday high of 11,299.53 for near full confidence. We’ll start to nibble when the tech-heavy NASDAQ can finish above last Wednesday’s close of 11,141.56. It closed out the first trading day of the week at 11,056.65; so, a little way left to go.
As chart observers, the reward to risk ratio at the moment favors sellers. If bears can take the NASDAQ below 10,728.03, Mary could find her way to about 10,000. Conversely, the index would likely run into resistance at about 11,500. That’s a two to one downside to upside ratio and the exact opposite of what we look for.
With stocks swimming underwater last week, our momentum and leadership models moved out of absolute bullish territory into neutral. This is another reason why we remain cautious despite the fast start to the week.
Yes, we could miss some gains if Wall Street continues to bid stocks higher and last week’s selloff was just a bout of profit taking. However, experience says waiting for an uptrend, continuation confirmation – a close above 11,141.56 – is the wise choice. As an old mentor used to say, “it’s better to be out of the market wishing you were in than in the market wishing you were out.” Put more bluntly, losing money hurts more than making money feels good.
Materials Select Sector SPDR Fund (XLB) was the only sector that produced gains along with improving, bullish technical readings last week. In a way, if investors are worried about an economic recovery, XLB is an odd choice because it’s a sector that is tied closely to the overall health of the economy.
XLB seeks to provide an effective representation of the materials sector of the S&P 500 Index. The Index includes companies from the following industries: chemicals; metals and mining; paper and forest products; containers and packaging; and construction materials. These are all things that depend on economic growth.
Short-term and longer-term momentum are picking up speed, suggesting Wall Street is betting on the economy gaining strength in the weeks and months ahead.
Of the 28 companies in XLB, LyondellBasell Industries N.V. (LYB) has the best combination of valuations, financial statement metrics, earning and sales growth prospects for 2021, in our opinion. The Specialty Chemicals’ stock chart also suggests shares could be on the move now as LYB exited a consolidation phase with Monday’s $2.18 gain. Shares haven’t fully recovered their pre-COVID form but could be on the way back to the low $90s in the next three-months or so.
With its handsome 5.65% dividend, LyondellBasell Industries N.V. (LYB) might be appropriate for growth and income investors who expect the economy to continue its revival.