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Although the S&P 500 and Dow Jones Industrial Average indices enjoyed pretty good gains Wednesday and finished at fresh all-time highs, the rest of the major indices failed to join the party. And the NASDAQ, NASDAQ 100, and Microcap indexes actually finished lower.

To be sure this was somewhat odd behavior on a day that was supposed to reflect the great cheer created by the Republicans trouncing their opponents in the midterm elections and retaking control of the Senate for the first time in 8 years.

The lackluster performance reminds me of the old Wall Street saw which suggests that a market that doesn't rally on good news could be in trouble. But wait, the S&P did rally. So, this is a little odd.

Digging deeper into yesterday's action , it was also odd to see some of the social media darlings such as LinkedIn (NASDAQ: LNKD) take a hit and for some big names in the NASDAQ 100 (NASDAQ: QQQ) such as Intel (NASDAQ: INTC), Google (NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN) to struggle on a day that was expected to be a sea of green on the screens.

Also odd is the leadership being displayed by some of the traditionally defensive sectors. For example...

Consumer Staples Sector SPDR (NYSE: XLP) - Daily

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Consumer Staples, which normally lead when the market is in trouble, are blasting higher at the present time with the chart looking like tech in the late 1990's.

So, is this action indicative of concern about the state of the market on the part of money managers? Is this the reluctant long play? Or are the valuations simply compelling at current levels? In any event, it is indeed odd to see Consumer Staples ripping to new highs as the major indices struggle to reach The Promised Land.

Along those lines, it is odder still to see the normally staid Utilities sector rocketing higher here.

Utilities Sector SPDR (NYSE: XLU) - Daily

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The bears contend that the recent leadership seen in the Staples and Utilities sectors is a harbinger of bad things to come. Our furry friends suggest that defensive leadership is not healthy action and that another meaningful decline is on the horizon.

However, it should be noted that the profitability of many utility companies is tied to energy prices. So with oil diving the lowest level in years, it isn't exactly surprising to see momentum-oriented traders bopping into the utility space for a trade.

The Takeaway

So let's review. The bears tried to implement the "sell the fact" trade yesterday on the Republican win but were only mildly successful - and only in certain areas. Then the current sector leadership is clearly defensive - all during what appears to be a fairly strong period for stocks. Thus, the takeaway is that things are just a little bit odd these days. And since the market has been a roller coaster ride of late, this is probably not a good time to be asleep at the switch.

Turning To This Morning

All eyes are on Mario Draghi this morning as the ECB President hosts the post meeting press conference beginning at 8:30 am eastern. So far we know that the ECB has left rates unchanged and there has been no mention of a QE program. We also learned that the ECB's inner circle did not call Draghi on the carpet for his so-called secretive behavior during the meeting. In addition, Draghi says the ECB's Governing Council is unanimously supportive of using "unconventional measures" and that covered bond purchases will soon begin. Finally, Draghi notes that the economic data coming in for the Eurozone indicates that growth momentum is clearly weakening and that the risks to the outlook are to the downside. All the talk about the ECB taking action has turned things around in Europe as well as here at home as U.S. stock futures now point to a stronger open.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: -0.86%
    Hong Kong: -0.20%
    Shanghai: +0.28%
    London: +0.47%
    Germany: +1.32%
    France: +1.56%
    Italy: +1.30%
    Spain: +1.33%

Crude Oil Futures: -$0.49 to $78.19

Gold: -$1.20 at $1144.50

Dollar: higher against the yen and pound, lower vs. euro

10-Year Bond Yield: Currently trading at 2.337%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +3.78
    Dow Jones Industrial Average: +43
    NASDAQ Composite: +7.00

Thought For The Day:

Fear makes the wolf bigger than he is. -German proverb

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Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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