After a Broad Rally, Watch for Sector Differentiation

2008/4/24 15:15:00

The power of real substance was on full display today. The market doesn't lack capital—it lacks confidence. Confidence comes from substance, and with substance comes the energy to charge forward.

However, one must not lose one's head over anything. Today was a broad rally—a release of all the pent-up pressure from the prior period. Therefore, whether this move can truly develop in a healthy manner hinges on the subsequent differentiation: the continued strengthening of the leading sectors is what matters for the long run.

As mentioned before, brokerages can now make direct investments, making them genuine venture-capital plays. Moreover, this tax cut will certainly give a major boost to trading volume. This sector remains worth watching after the earlier alert, though there's no need to chase highs—after all, there will be a shakeout process.

Additionally, as discussed previously regarding the nature of this rally, it is definitely a big-cap world. Ordinary theme stocks can only dabble on the margins for now. So the rhythm of first-tier, second-tier, third-tier will likely be quite pronounced.

Pay attention to the rotation rhythm among leading sectors, as well as the pace of spillover into second- and third-tier names.

Of course, from a pure trading perspective, we cannot be blindly bullish. You have to take it one bite at a time. The key short-term level is 3,656 points—hold above it and the rally continues; otherwise, we enter a consolidation phase.

Signing off for now. See you next time.