RenMac: DAX Shows Momentum on the Rebound
DAX shows momentum on the rebound
Europe finally made the move we were anticipating with a rebound off the 200-day moving average. This was punctuated by a momentum expansion in the DAX as the percent of issues making a 20-day high in the move reached nearly 70%.
Why is this important? It shows that there was enough pent-up demand that buying became indiscriminate with respect to the evaluation and selection of actual stocks. In other words, investors simply wanted in because of a fear of missing out. This type of momentum is how we discern the difference between the odds favoring simply a reprieve from weakness versus a resumption of the uptrend. History suggests the latter is more likely.
From a sector standpoint, although the banks generally outperformed during the recent weakness, industrials are now at the top of our sector rankings. We did get capitulation on the banks last week followed by the requisite rebound, and now we are in wait-and-see mode for a momentum expansion with the group. It’s too early to look for a 20-day high expansion on the heels of 20-day lows spiking, but if we don’t see follow-through sometime in the next month, we’ll be taking bank profits off the table and redeploying towards the new leadership.
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