A Shifting Market

 | Dec 22, 2011 | 7:14 AM EST
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It was really quite impressive that, by the end of Wednesday's session, the market managed to shrug off the bad news out of technology. But who didn't see that?

Much has been written written about the high-yielding defensive stocks of late. Yet, the day traders of the world -- heck, the traders of the world in general -- have not really embraced them, outside of a brief recent fling with the drugmaker stocks.  Whenever I discuss this group I get responses such as, "Yes, but do you think Baidu (BIDU) is a buy here?" Perhaps more accurately, the sentiment is: How can the market rally without momentum stocks, or without Caterpillar (CAT) and Freeport McMoRan (FCX)?

Folks, I realize I am older than many, but when I got into this business nearly three decades ago, consumer non-durables were the "go-to" stocks. Heck, I don't believe there was a serious portfolio manager who didn't own Wal-Mart (WMT). Can you imagine that? Wal-Mart shares haven't gone anywhere in 20 years, but in the 1980s and early 1990s, it was the "go-to" stock.

Furthermore, I plot the chart of CAT by hand every day, and for probably the better part of 20 years, no one ever asked about that stock. Imagine that! CAT was really a dog -- for decades. Look at this chart from the late 1990s: it was in a 10-point trading range for the entire tech love affair, and during the first S&P 500 rise to 1500! If I had told you then that Caterpillar would eventually become the "go-to" stock, you probably would have laughed at me and asked about some high-flying tech name like Yahoo! (YHOO).

Caterpillar (CAT) -- Daily

Just as clothing fashions come and go -- I know some of you men are watching with trepidation as those three-piece suits become popular again -- there are periods of group rotation in the market. Corrections are supposed to be the market's way of changing leadership.

Case in point: General Mills (GIS) disappointed the Street Tuesday, and Oracle (ORCL) disappointed Wednesday -- and yet, while both stocks declined in response, they behaved in vastly different ways. General Mills bounced off an uptrend line and recaptured it, whereas Oracle collapsed to support. Did you see anyone fussing over General Mills in the way they did for Oracle? I did not.

Oracle (ORCL) -- Weekly

General Mills (GIS) -- Daily

In the meantime, the number of stocks making new highs expanded again -- and, once again, this happened without the participation of U.S. Treasury bonds. Breadth hung in there and was positive on the day, as well.

On Wednesday I discussed the Russell 2000, and now I ask you to look at the Dow Jones Transportation Index. The same pattern is showing here, only in the transports we're also seeing the 200-day moving average line right in this neighborhood, as well. This is that same 5100 area at which the index has stalled three previous times. As such, if that doesn't happen this time, it will be impressive, especially since oil has been up so much.

Dow Jones Transportation Index -- Daily




Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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