When Tech Enters a Strong Bullish Trend, Financials Fly High!
Well, so much for “sell in May and go away”!
The S&P 500 (SPX) continued to bounce back in a big way last month, with the index posting a 6.15% rise as we entered June. That marks the S&P 500’s best gain for the month of May in 35 years!
And the tech-heavy Nasdaq performed even better, up a full 10% in May.
That’s not to say there’s no truth to the old Wall Street adage: Since the 1950s, May has historically been a subpar month, at least in terms of stock market performance. But over the past decade we’ve seen a reversal of fortune – with May producing the third-best average monthly returns for the S&P 500, at +1.46%.
And that’s not the only positive news around. the Nasdaq Composite Index (NDX), home to mega-cap juggernauts Amazon.com (AMZN), Broadcom (AVGO), Nvidia (NVDA), and many other leading tech stocks, just triggered a very bullish uptrend signal:
Nasdaq’s trend score increased rapidly – moving from an oversold position to triggering a buy signal in just five days, according to SentimenTrader. This metric gauges the strength of trend over multiple timeframes and indicators to detect key market turning points.
There’s more to the story on this bullish signal – but before we take a deeper dive in today’s issue of Inside TradeSmith, I have an important Market Outlook update for you.
We’re Starting June Strong – with Four New Bull Signals!
As those of you with market trend alerts configured on TradeSmith Finance may have noticed, four additional stock indexes – both in the U.S. and abroad – flashed new bull signals yesterday:
This includes the S&P 600 (SML) and S&P 400 (MID) small and mid-cap indexes, plus the large-cap Russell 1000 (IWB) – all of which have now re-entered our Health Indicator Green Zone.
In addition, the main index down under, the S&P ASX 100 Australian Index (XTO), also entered the Green Zone with a new buy signal yesterday.
As a reminder: When looking for new potential stock buys, you should consider only the healthy Green and Yellow Zone stocks in these indexes – not every component of these indexes are equally in the Green, even as the composite indexes trigger buy signals.
Right now, there are still plenty of stocks in the Red Zone (72.7%, 70.05%, 64.97%, and 48%, respectively) within these four indexes.
In times like these, another tool to consider using is our TradeSmith Gearing Up for Green screener, shown below:
From your TradeSmith Finance dashboard, Navigate to Invest, then select Screener from the menu near the top of the screen.
Once you’ve opened the TradeSmith Screener tool, you can select the Gearing Up for Green screener from your list of pre-saved screeners by opening the dropdown menu at the top of the Screener menu. You’ll find Gearing Up for Green under the TradeSmith Screeners heading.
To scan for promising stocks in these freshly Green indexes, simply click on the + Add Filter button to add the Markets filter to the existing pre-saved filters. Then select the markets now in the Green Zone, as shown above.
You can use this screener to quickly identify stocks that are still in the Red Zone now, but that may be setting up to deliver fresh Green Zone re-entry signals very soon.
When Tech Stocks Fly, Financials Go High…
Looking back to the already-Green Nasdaq, there’s more good news following the index’s rapid increase in trend score.
Typically, this trend-based buy signal leads to a sustained rally, as you can see in the earlier chart. Following the signal flash, the Nasdaq has historically found itself higher in the following months – with the index up over both the two-month and 12-month time frames more than 80% of the time.
And over the long-term, things look particularly good for the tech sector: after these trend signals flashed, the Nasdaq has historically gone on to deliver average gains of 26.5% at the 12-month mark!
The finer details are even more interesting.
When taking a closer look at which sectors – besides technology – performed best after a Nasdaq trend score buy signal like this, SentimenTrader found these revealing results:
As you can see above, stocks in the Financial sector stand out, with sizzling heat map results. In fact, financials delivered better performance than tech stocks themselves after these Nasdaq signals – and that’s true over most of the time frames in SentimenTrader’s study!
Financials were higher almost 80% of the time, up to 12 months after the trend score signal flashed. And median gains were awesome, averaging more than 23% in upside in the 6-to-12 months after the Nasdaq buy signal!
And as it happens, this new Nasdaq signal is well-timed for this sector. The S&P 500’s Financial Services ETF (XLF) recently triggered its own buy signal – moving into our Health Indicator Green Zone just three weeks ago:
Right now, the majority of financial sector stocks (53.42%) are still in the Red Zone, but there are plenty of Green and Yellow Zone stocks to prospect among for potential new buying opportunities.
Plus, the sector offers higher than average dividend yields, compared to both the S&P 500 and Nasdaq indexes. And it’s always nice to earn frequent income while waiting for price appreciation.
To take a first glance at potential options, I ran a quick and simple screen on the financial services sector – looking for stocks in the Green or Yellow Zones with an up or sideways trend. Additionally, I set my screen to find stocks that pay a dividend of 2% or more, and that have a Business Quality Score over 50.
When I ran this screen yesterday, I got 10 results. Here are the top five, sorted by dividend yield descending:
Bottom Line: Nasdaq technology stocks could be ready to go on a tear again after triggering this strong uptrend buy signal. But, perhaps surprisingly, a completely different cyclical sector is primed to benefit as well: Stocks in the financial services sector have posted their own very robust upside gains after similar Nasdaq buy signals triggered in the past.
If you still have reservations about tech sector valuations – or just want to diversify into another strong sector – it’s worth your time to take a look at the other potential winners of a Nasdaq rally. And whether you use the Gearing Up for Green screener or your own custom search, TradeSmith’s tools can help you find new opportunities in a recovering market.
Good investing,
Mike Burnick
Senior Analyst, TradeSmith
P.S. The latest buy signal from the Nasdaq offers another bit of encouraging news in an especially volatile year – and with four more major indexes entering the Health Indicator Green Zone just yesterday, there’s plenty of opportunity to be found across the market.
But just as financial stocks could be the hidden winners of a Nasdaq surge, there are other opportunities lying just out of sight.
My colleague Louis Navellier, Senior Analyst at our corporate partner InvestorPlace, has spent nearly five decades mastering his quantitative approach to stock selection. It’s helped him uncover some of the market’s biggest winners well before Wall Street caught on – and his personal selection system has flagged more than 175 stocks that went on to soar 1,000% or more.
Louis has been following the news out of the Trump administration closely, well before April’s tariff troubles upended the market. And just last week, during his highly anticipated Liberation Day 2.0 Summit, Louis pulled back the curtain on what he believes is the biggest profit opportunity of the next decade.
According to Louis, Trump’s started work on a $10 trillion economic plan – a plan that could unleash a tidal wave of capital based on three key pillars: tech innovation, tax cuts, and energy independence.
During his event, Louis shared the names and tickers of several high-conviction plays – including an A-rated stock he believes could double or even triple in the months ahead.
If you missed the live broadcast, you’re running out of time to get the details – and running out of time to capitalize on the market shift Louis has identified.
A full replay of the Liberation Day 2.0 Summit is available – but this is your last chance to see it.