I feel a shift in the air, a slight breeze coming from the north, the land where markets settle in, where markets find a place to roost. Maybe it is just wishful thinking, my optimistic view portraying something that is not real, but it appears to me the market has been building toward a breakout for some time now.  

  • Investors are keeping an eye on Ukraine ahead of a presidential election on Sunday and amid further violence, as well as on a military coup in Thailand, although neither event seems to be having too much of an impact on markets.

Geopolitically and economically speaking, Thailand is, well, where is it again? Ukraine, however, has been an influence on the market, and as it winds down, if it is winding down, the market will benefit, and so, this too might be part of the shift I feel.  

  • U.S. stocks ended higher for the second straight session on Thursday, led by small-cap stocks, while the Nasdaq climbed on a rally in biotech shares.

As you know, I trade small caps, so I am tuned into the reality there, which has not been pretty as of late. This week, the sector found a bottom, a place to settle in, a place to begin rebuilding from the devastation of the last two months.

  • The Russell 2000 .TOY index of small-cap shares rose 0.9 percent, outperforming the broader S&P 500. The Russell fell into correction territory last week – defined as a 10 percent decline from a recent closing high – but has since retraced some of that, and is now less than 8 percent from its peak.

Ukraine, earnings, economic data, and the awareness that small-cap energy, Internet, and biotech high flyers had flown to high all contributed to the turbulence of the market, which resulted in the market’s recent range-bound performance.

  • The S&P 500 is about 10 points away from its record intraday high set on May 13. For the past week, the index has been caught between the high and its 50-day moving average as data left investors unsure about the pace of the economic recovery.

Yup, I feel a shift, now that earnings are finishing in a positive place, Ukraine is settling down, the economic data relative to the US and global economy is improving, and money is flowing back into small caps and other “mo-mo” stocks. Then again, maybe I like that today is Friday and Monday is Memorial Day, which means we have a mini “vacay” in front of us. Maybe that is what I feel in the air.

Maybe …  

  • The Internet of things is especially important for companies that sell network equipment, like Cisco Systems. Cisco has been enthusiastically predicting that 50 billion “things” could be connected to communications networks within six years, up from around 10 billion mobile phones and PCs today.

The above is a follow up to yesterday’s information about SigFox, the French company getting ready to wire up San Francisco for the “Internet of things.” As with most things new to me, I find out what they are about, and it appears, the idea of low bandwidth wireless networks to allow “dumb” computers to run our world is laden with opportunity.

  • Another beneficiary is the $300 billion semiconductor industry. Every time there has been a new class of computing, the total revenue for that class was larger than the previous ones. If that trend holds, it means the Internet of things will be bigger yet again.

Bigger still say those in the know (MIT) and that means more innovation, more companies doing business in this arena, more products to sell, more revenue, more profit and so on …

  • Product companies compete by building ever bigger factories to turn out ever cheaper widgets. But a very different sort of economics comes into play when those widgets start to communicate. It’s called the network effect—when each new user of a product makes its value higher. Think of the telephone a century ago. The greater the number of people who used Bell’s invention, the more valuable it became to all of them. The telephone became a platform for countless new businesses its inventor never imagined.

It also means more opportunity for market players, and, in the end, that is my focus – finding opportunity to make money in the market.

  • Now that more objects are getting wired up into networks—street lights, wind turbines, automobiles—there are opportunities for new platforms to emerge.

Maybe my wind-shifting sense is overly optimistic, wishful thinking, or maybe I am reading too much into my set of tea leaves, but I can’t shake it. Something is in the air. The market might well be shifting.

Trade in the day; invest in your life …

Trader Ed