Textbook Technical Rally; IR, MU, SIVB Look Interesting Now
If I sound like a broken record, I can only justify it with the fact that the market has indeed been rallying, as we’ve noted pretty much all year.
So, the technical backdrop remains bullish for risk assets, notably cyclical stocks with this past week’s acceleration one more confirming data point. Sure, some stocks are getting extended in the very short-term and the on-again off-again US-China trade friction could easily create some profit taking at any point.
However, despite potential near-term nerve-wracking volatility, the far more important technical focus is that longer-term cycle charts track an almost perfect bull market profile: An impressive surge through Q119 from long-term cycle lows at rising 200-week moving averages, followed by four to six months of orderly consolidation, followed by a second bull market leg up that broke out to the upside in Q419.
I look for the next tactical pause point to be in mid-late February based on our weekly momentum indicators.
Right here, right now, the cyclicals continue to stand out technically given most traded sideways in narrow, orderly trading ranges for four to six weeks after breaking-out in October. The charts of banks and industrials are the type you’d see in technical textbooks highlighting new bull cycles. After the pause in November into this week, most cyclicals are starting new upside moves that should last through the year end.
The price charts of Ingersoll Rand (IR), Micron (MU) and Silicon Valley Bank (SIVB) below reinforces the importance of staying focused on the longer-term cycle charts.
The bottom line here is that these three charts outline a typical progression of cyclicals in different stages of bull markets.
IR (top panel) remains in a long-term uptrend and is just resolving a six-month consolidation to the upside. MU (center panel) is in the early stages of breaking out of its 2019 trading range, while SIVB is the early stages of starting a new cycle up move as it reverses its 2019 downtrend after bottoming at long-term support at its rising 200week simple moving average.
Noteworthy:
Technology continues to lead with cyclicals improving. Financials are extending a emerging relative uptrend while industrials, materials and energy are again beginning to outperform, after multi-week pullbacks/pauses. Continue to increase exposure.
Defensive sectors still weak despite being oversold in the short-term. Reduce exposure.
Bottom Line: Remain bullish.
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