Market Can't Sustain Upside Push

 | Jul 20, 2017 | 5:24 PM EDT
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Wednesday's strong upside push to new record highs left the indices very overbought on a short-term basis, so it wasn't too surprising today to see some flat action. 

Sector leadership was mixed, with solid gains in biotech, which remains a favorite among momentum traders, while the more dollar-sensitive areas (materials and energy) lagged. Despite a rather dovish tone out of the European Central Bank this morning (Mario Draghi riffed on below-target inflation, as Janet Yellen did last week), the euro continued to press higher while the greenback continued its waterfall descent. 

Under the surface, there were a few solid bars out there, including Datawatch (DWCH) , Adtran (ADTN) , Park City Group (PCYG) and Simulations Plus (SLP) , to name a handful. However, the action was more choppy than anything, so catching a decent wave was more about luck than skill. 

I spent more time digging through data, looking to see just how high the valuations are in individual names. I worked my way through most of the Nasdaq 100, and some of the readings are really pushing it. That's not to say they can't continue to levitate, but it's something to keep in mind as we manage our positions. On a surprising note, Amazon (AMZN) is surprisingly reasonable given analysts' estimates for growth. The basic PE multiples might seem high, but the forward PEG (price-to-earnings-to-growth) is a reasonable 1.3, while the EV/S/G (or enterprise value to sales to growth) is only 13.8. By comparison, Nvidia's (NVDA) PEG and EV/S/G are 3.5 and 94.5, respectively. 

I'll be looking for more possible hidden gems, and I hope to chat about some tomorrow. 

On a final note, I've been yapping about the "sell the news" reactions in financials lately, but the chart for the Financial Select Sector SPDR ETF (XLF) is developing a very attractive cup-and-handle pattern, which I've attached for your perusal. 

Financial Select Sector SPDR ETF (XLF) -- Daily
-- Written by Jim Koford

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