Technical Strategy Video:
Key Takeaways
- 2% rally in indices occurring on monster breadth of nearly 9/1 positive as Small-Caps lead while Value Line finds strong support near July lows
- Semiconductors and Hardware lead Technology surge, helping Tech recoup its top spot among all S&P SPDR ETF returns, with +3% gains
- Insurance has broken out vs Banks; Meanwhile EWT remains tops in Emerging Markets
Tuesday’s bounce leaves prices stretched near-term, while daily momentum indicators like MACD remains negative. While the 5/1 breadth of Tuesday’s move is quite positive, (and Volume also finished 5/1 bullish) this move has risen a bit too far, too quickly, technically. For investors that failed to buy dips, and missed Tuesday’s rally, I’m expecting there will be an opportunity to buy dips over the next couple weeks ahead of a Santa Rally. Overall, the sharply positive Adv/Dec ratio in Tuesday’s session means that even on a pullback, we’re unlikely to see breadth negate what’s occurred, and should be good to buy dips. The key level on the downside to pay attention to lies at 4612.60. Under this would be problematic to the bull case.
What’s important to concentrate on, technically
Technology looks to be taking the lead, yet again after a less than stellar past few months. The movement specifically in stocks like AAPL along with the SOX pushing back to highs are both seen as positives for this group. I mentioned last week that Tech has broken out again in equal-weighted terms vs SPX, so this sector remains one to overweight.
Financials are also getting a positive lift with Treasury yields turning back higher. This Yield bounce should continue into end of year, and likely will benefit Financials. One should particularly pay attention to Insurance names, with stocks like AJG, MMC, BRO, and AFL, which are some of the strongest in the group.
Small-Caps look to be at/or near an inflection point vs Large, and might outperform in the coming weeks, as IWM bottomed right where it needed to.
Emerging markets are also firming at a time when China is trying to slowly but surely carve out a bottom. It’s expected that EWT-Taiwan, and EPHE- Philippines, are two of the stronger areas, while China-FXI is one of the weaker. Yet KWEB’s pullback to multi-year support creates an interesting and attractive risk/reward for those that enjoy buying dips and are looking for a counter-trend play. Initially below, here’s the chart of EEM vs IDEV (Emerg v Developed) As shown we’ve seen some positive divergence in momentum and now a trend break of this downtrend. When the US Dollar turns lower, this should begin to turn higher quickly.
One of the best performing and technically attractive of all Emerging markets right now remains Taiwan. The Ishares ETF for Taiwan (EWT, shown below) Following one failed breakout in November, this has now pushed back to new all-time highs above April 2021 peaks. Upside targets short-term lie at $69.
Insurance and Regionals likely outperform Money Center banks on this yield spike– The chart below highlights a ratio chart of the KIE, (SPDR S&P Insurance ETF), vs KBE, (SPDR S&P Bank ETF) Tuesday’s breakout in KIE should allow for Insurance names to outperform in the weeks to come. Specific names which are attractive technically are AJF, MMC, BRO, AFL, and PGR.
