The Stock Market Has Changed Course And So Should We

Last Thursday and Friday provided us a glimpse of what the next several months could look like.

Early this year, I expected that the stock market would unravel, but then rally back late in the year as lower interest rates spurred growth stocks after 9-10 months of relative devastation. Below is a chart that highlights key support levels of the 10-year treasury yield ($TNX), along with the relative performance of several key growth vs. value ratios:

Enter 10-Year Treasury Yield ($TNX):

I've used a thick, black, directional line to highlight a critical support test near 3.50% that I believe is coming fairly soon. A drop to that level will spur growth stocks further to the upside, but a breakdown beneath that 3.50% yield support will begin an avalanche of rotation towards growth. Because the aggressive sectors like technology (XLK), consumer discretionary (XLY), and communication services (XLC) carry so much weight in both the S&P 500 and NASDAQ 100, we'll need to be OVERweighted in these areas if we hope to outperform the S&P 500. That certainly adds additional risk to the equation, and not everyone is suited to take on that additional risk. That decision rests on each individual. But as we prepare to line each of our three portfolios (Model, Aggressive, and Income) with 10 equal-weighted stocks after Thursday's close, I can promise you I will be taking this into consideration and our portfolios will be much more aggressive in the quarter ahead. We'll announce those individual stocks at our Portfolio Draft event on Thursday at 5:30pm ET, so if you're interested and not currently a member, be sure to start your 30-day free trial.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.