On Wednesday investors were again attempting to get a handle on the month end rally, trying to determine what’s largely behind the gains.
On the floor investors were asking if it was:
- bargain shoppers gobbling up names that were oversold,
- a short squeeze as short sellers covered positions,
- or a bet the economy will soon improve, whatever the catalyst.
If you think the recovery option above is out of the question – you should know the rally has been led by sectors tied to economic growth with industrial stocks among the top gainers.
Considering the S&P 500 has ended in positive territory in seven of the past eight sessions, how should you position?
Trader Steve Cortes isn’t buying the move. “I loved the market at 1120 but I’m starting to hate it above 1200. It’s gone up way too fast,” he says.
Cortes goes with option 2 above. “I think it’s a short squeeze," he says.
To support his thesis Cortes points to the strength in both gold and Treasurys.”If there was a growing interest in stocks, we’d see safe havens coming off and we’re not seeing that.”
Zach Karabell thinks Cortes has it all wrong. He believes the sharp gains in late August counter-balance the sharp sell-off during early August. It’s simply the market ‘righting itself.’
To support his thesis, Karabell points to strength in Joy Global, with the company's latset results, topping estimates. “32% revenue growth in a world that’s falling apart? Not likely,” he says. And he thinks results confirm that emerging markets are still strong – even if the strength is relative.
Jon Najarian sides with Karabell. He reminds the desk that the company’s bottom line is driven by demand.
Patty Edwards is a fan of the industrials too. In addition to JOYG, she suggests a second play. “Anixter International is another name to put on the radar,” he says.
