Another day of solid buying and the sharp increase in housing starts gave the homebuilding stocks a boost, which helped the overall market. The A/D lines for the NYSE Composite, S&P 500, Nasdaq 100, and the Dow Jones Industrials have now broken their downtrends. Maybe the Wall Street pros realized that too many of them were bearish or cautious on the stock market and started buying.
The A/D line on the Nasdaq 100 has confirmed the new price highs as the PowerShares QQQ Trust (QQQ) is now close to monthly projected pivot resistance at $99.27 and its daily starc+ band. The McClellan oscillator has risen to +195, which is the highest reading since February 18. The oscillator action is likely a sign of strength so a pullback is likely to be a buying opportunity.
So what should one be buying? In last week's Barron's, there was an interesting interview with Stephen Auth, the investment officer, equities, at Federated Investors whose staff manages about $50 billion of assets.
Mr. Auth was one of the few who was bullish at the end of the 2012 and he "expects the Standard & Poor's 500 to reach 2500 in the next 18 months to two years." This is based on his expectation that "the US economy is poised to grow even faster, possibly at a 3.5%-to-4% clip."
There is an in-depth review of his rationale in the article and he provided Barron's with four stocks he likes: Devon Energy (DVN), Google, Inc. (GOOG), Textura Corporation (TXTR), and LyondellBasel Industries (LYB).
I will concentrate on the three stocks that are closely tied to the strong material sector.
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