After waffling about what a more dovish Fed meant for stocks on Wednesday, investors seemed more convinced it was a good thing on Thursday and stocks jumped as a result. All four indices experienced solid gains with the Dow (+0.84%) being the only one that didn’t gain over one percent.
The Nasdaq led the way with a gain of 1.42%. The Russell tacked on 1.14% and the S&P added 1.09%.
[hana-code-insert name=’adsense-article’ /]Nine of the 10 sectors moved higher on the day.The financial sector (-0.31%) was the only one in the red and that is a carryover from yesterday’s policy change from the Fed.
The tech sector led the way on Thursday with a gain of 2.51% and it was followed by the consumer discretionary sector with a gain of 1.37%.
In all, there were six sectors that gained over one percent.
Even with the big move to the upside yesterday, my scans still produced more bearish signals than bullish ones.
That is due to the number of stocks in overbought territory. The final count from last night was 30 names on the bearish side and 21 on the bullish side. The -9 differential was the smallest negative reading in the last six days.
The barometer moved up slightly from -48 to -34.3.
With the tone of the market shifting to the bullish side and due to the change in policy from the Fed, today’s trade is a bullish one on the SPDR S&P Homebuilders ETF (NYSE: XHB). The industry has lagged a little in recent quarters with the Fed tightening. Now that the Fed is more dovish, this could help the sector. You should also be aware that there are several holdings of the XHB that are scheduled to report earnings next week.
The XHB rebounded from its December low and has pretty much tracked the market since then. It pulled back over the last few weeks and that allowed the 50-day moving average to catch up to the current price. The fund seemed to use the moving average as support on Wednesday and then bounced back yesterday.
Buy to open the May $21-strike puts on XHB at $1.40 or better. These options expire on May 17. The options will double if the fund reaches $40.80. That is above the recent high, but it wouldn’t have to reach a new 52-week high. I suggest a target gain of 100% with a stop at $37.40.
— Rick Pendergraft
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