By Kevin Marder
It is difficult to dislike a market that has rebounded so quickly from its only threat of nearly a month ago. One can disagree with the Nasdaq Composite's /zigman2/quotes/210598365/realtime COMP +3.13% lofty height, but arguing with the market can be an expensive way to play the game — let alone have one's head handed to them.
A more effective and safer avenue is to simply stay in synch with the major averages and leading stocks. Opinions are often wrong, but the market is usually right.
And so a Nasdaq idling just inches from its record high amid stout performance from its leaders is a Nasdaq that should not be messed with. This brings to mind the big takeaway from the 1990s bubble era: The market can go a lot further than one can imagine.
Will this bull market end badly?
Of course. Any bull that has gone this far for this long has built up excesses that will surely be dealt with rudely in the next bear.
But like any game of musical chairs, until the music stops the game should be played.
The real key to knowing when an 8%-12% intermediate-term correction is upon us will be the action of the leading stocks. When they begin breaking down on volume, that will send a message that will speak like all of the personal opinions, predictions, and crystal balls in the world. The message will be that the speculative sentiment is warped, if not broken.
Within the list, the banks /zigman2/quotes/210598427/realtime BKX +1.03% and brokers /zigman2/quotes/210598459/delayed XBD +1.69% have shown solid outperformance since a week after the late-June lows. It is hard to imagine the market getting into too much trouble with these segments acting like this. Both have historically had leading-indicator qualities.
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Technology remains the leader. This is always a plus as it indicates the speculative sentiment is alive and well.
Defensive sectors are all lagging, to varying degrees, a major plus. This means consumer staples /zigman2/quotes/200697959/composite XLP +1.18% , utilities /zigman2/quotes/206645117/composite XLU +1.21% , health care /zigman2/quotes/205918244/composite XLV +2.04% and telecommunications /zigman2/quotes/200890842/composite IYZ +2.87% .
Among the names, Parsley Energy is an oil and gas explorer and producer operating in the Permian Basin of West Texas and Southeastern New Mexico. After losing 25 cents a share last year, PE should earn a profit of 10 cents a share this year and 48 cents a share next year, per most Wall Street analysts.
Parsley's relative strength rank for 12-month performance is the 97th percentile. Its industry group is ranked in the 98th percentile for six months. The shares are under extreme accumulation (focused buying) over the medium-term.
Since clearing a three-month base in March, the shares have moved up more than 75%. After a seven-week consolidation, price rose to a new high Wednesday on volume 85% above normal. Thursday Parsley eased as volume drew back.