Financial Research
Technical Strategy
- Technical Strategy
The S&P 500 index’s (SPX) historic decline last week sliced through most of the moving averages at the heart of technical analysis, with a break below the 200-week simple moving average at 2636 the most recent casualty. That four-year moving average is a proxy for the secular uptrend of the SPX seen during the bull markets in the 1950s-1960s, 1980s-1990s and 2009-2020. In other words, the break below the 200-week sma at 2636 raises the risk the recent equity sell-off has ended the secular bull-market. Of course, the 20% plus drop already herald’s the bear market’s arrival. While this week’s break below the 200-week is a major concern, particularly given the looming global economici slowdown, I believe it is premature to conclude the secular bull market is broken. Of course, I am concerned and not blindly ignoring the risk to equities, but I also believe there are two key technical points to consider before we can declare the secular bull market to be DOA. Is the secular uptrend broken with SPX below its 200-week sma or just dented? Source: FS Insight, Bloomberg First, the chart above illustrates the past three pullbacks to the 200-week sma since 2009. The cycle lows in 2016 and again in December of 2018 were almost textbook examples of a major cycle low developing at that key support level. The correction in 2011, however, could be what is developing today. It’s premature to make any definitive conclusions, but the low in 2011 undercut the 200-week sma by 5-6%, then traded in a very volatile range only to make a marginal new low a month later before recapturing 200-week sma on the upside. Additionally, the four-year cycle lows in late 1957, 1962 and 1966 spent many weeks in volatile ranges below 200-week sma before reaccelerating to the upside 1-3 months later. I would also note that Friday the SPX was near a cluster of key support levels starting with 2416 which is the important 61.8% Fibonacci retracement level of the 2016-2020 rally followed by the December 2018 lows at 2346. I can’t state for sure these levels will hold but it would be an important technical development to see the S&P begin to stabilize near current levels. Keep your eyes on that. Secondly, after peaking in early February, weekly momentum indicators continue to decline and are unlikely to signal an intermediate-term, tactical bottom until well into 2Q. I expect these should begin to bottom in late April-May, which coincides with markets better understanding the scope of Covid-19 and potential impact to earnings. Bottom line: My expectation is that the S&P is likely to begin to stabilize near the support levels outlined above followed by a very choppy trading well into 2Q similar to what developed in 2011 and during the cycle lows in the 1950s. Figure: Weekly Sector ReviewSource: FS Insight, Factset Figure: Best and worst performance sectors over past 3 months Source: FS Insight, Bloomberg
- Technical Strategy
Don't Micromanage Near Term Pullbacks: Stick With Cyclicals
The excessive focus by so many technical traders on the short-term overbought condition of the Standard & Poor’s 500 index (SPX) is misplaced. Focus should be on the longer-term accelerating bull market. When equity markets begin to trend following break-outs, short-term indicators, such as relative strength index (RSI), often remain overbought for extended periods of time.I continue to caution investors from attempting to micromanage near-term pullbacks at the risk of missing the bigger underlying uptrend. To reiterate my recent recommendation, add to cyclicals on pullbacks and use the current bounce in defensive stocks and bonds to reduce exposure. Semiconductors sold off sharply this week, led lower by semiconductor capital equipment, raising concern that their bull cycle was ending. I have focused on this group multiple times as one of the reasons to remain bullish through 2019. After all, semis relative performance bottomed in advance of the SPX in October of 2018 and has led through the year. The SOX semi index has rallied 65% from its cycle low, 36% of which developed since May. Given the group often leads bigger market reversals, clients are questioning whether this week’s weakness is signaling a more ominous downturn for equities. My view is their recent weakness is short-term and part of a healthy pullback in an ongoing uptrend. Note in the chart below the SOX’s price trend remains positive with higher highs and higher lows in place, as the 2019 linear uptrend remains intact and the price remains above a rising 50-day simple moving average. There is little technical evidence at this point to conclude a major top is developing. After such a strong surge in 2H 2019, a pullback is hardly surprising with support levels starting at 1625 down through to 1500 round numbers. For a group as volatile as semiconductors, steep pullbacks are not uncommon in an ongoing bull cycle. Be patient and use weakness in the balance of Q4 to increase exposure. Noteworthy: Technology’s longer-term trend intact with a short-term pullback underway. Financials are in the early stage of reversing their 2018-2019 downtrend and remain above their 200-dma. Industrials are also showing evidence of reversing their longer-term downtrend. Remain overweight. Defensive sectors, notably utilities and staples, are oversold short-term but have yet to stage any meaningful upside. Remain underweight.
- Technical Strategy
The Ebb and Flow Between Growth and Cyclical stocks
BABA and NTES are timely again after their recent corrections If you didn’t have a chance to join our FSInsight Virtual Conference on Thursday you can find the replay at this link (click here). My technical analysis presentation begins at 1:39:20 and at 1:48:10 I discuss the hotly debated topic of growth stocks versus value stocks. While I expect cyclicals to outperform into Q1 and likely through 2021, I don’t believe growth stocks are establishing long-term tops as some market pundits have suggested. From my technical perspective, there simply is insufficient technical evidence to make that case. Sure, many growth are well advanced above their uptrends but many other growth stocks are working through orderly sideways trading ranges or consolidations. I view these types of pauses in uptrends as normal and healthy technical behavior. It is not unusual in bull markets for leading stocks to pause, consolidate and catch up to longer-term moving averages which is often near their 200-day averages. Bull markets are a type of relay race where leadership is often passed between a number of market leading groups. Why is this relevant now? Well, after pulling back from their late summer and fall highs, a growing list of growth stocks are moving back to levels where I expect to see them begin to bottom and start rebounds. Incrementally, one by one, I am seeing a growing list of growth stocks starting to show evidence of bottoming intermediate-term. The bottom line is that while I expect cyclicals to outperform through 2021, it does not mean growth stocks aren’t also going to participate on the upside. In fact, I’m expecting leadership to ebb and flow between growth and cyclical stocks over the coming quarters and technical analysis will be one of the better financial tools to spot timely entry points in each theme. Expect market leadership to ebb and flow between growth and cyclical stocks. This is stock pickers market and technical analysis will be helpful spotting timely buy points in both growth and cyclicalsAfter correcting almost -20% Chinese technology stocks, such as NTES and BABA are at timely buy points NTES and BABA are two large-cap Chinese technology stocks that illustrate my points above. NTES peaked at the end of August and BABA at the end of October. Both stocks have corrected -20% BUT are now near timely buy points as they test support bands just above their rising 200-day sma. I view both stock to be at timely entry points for those investors looking to add growth exposure. Figure: Weekly Sector ReviewSource: Fundstrat, FactSet Cyclical sectors hung on to most of their gains from the prior week following more positive vaccine news. Energy and financials were again noteworthy this past week holding their gains from the prior week and remaining above their eclining 50-day moving average of relative performance. Industrials and materials continue to stand out as leading cyclical sectors while FinancialsAfter many weeks of underperforming, the discretionary and technology sectors began to show evidence of stabilizing. We continue to view the pullback in these two leading growth sectors as healthy pauses in longer-term price uptrends. Figure: Best and worst performance sectors over past 3 months
- Technical Strategy
Look to the Semis for Market and Cyclical Direction
Semiconductors are where it’s at. The sector will remain one of the more important industry groups to watch in the coming days and through year-end. Let’s start with a very short-term review of the Philadelphia Semiconductor Index (SOX). As weird as Fibonacci retracements may seem to the uninitiated, I’m always impressed how well they identify reversal levels often referred to as pivot points in technical discussions. Of course, they aren’t perfect; no single indicator is but very often a 50%-62% retracement of a prior move in an asset serves as a reversal level. In just over a week, the SOX collapsed, down 13%, only to bounce up magically from 62% retracement of the June-July rebound, which conveniently corresponds to a broad band of support at the summer 2018 highs. By Monday’s close a bounce seemed likely supported by a variety of trading indicators, such as the relative strength index (bottom panel) along with the Put-Call, and VIX etc. reaching near-term oversold extremes. The bottom line is the low established this week near 1411 on the SOX is now an important line in the sand for the bull-bear debate. If I am right that the broader market is establishing a low, then the SOX should not break this week’s lows. Given the destructive speed of the correction, it wouldn’t be surprising to see a choppy basing pattern develop for a few weeks ideally catching up the rising 200-day moving average, currently near 1350. What I found particularly interesting this week was the strength the semis displayed, notably during last Tuesday’s decline when most pro-cyclical groups were in the red. Assuming semis are able to stabilize near current levels, which I believe is just beginning to develop, look for these stocks to rebuild their relative leadership versus the broader market as an important tell for not only the direction of the broader market but for cyclicals across the board. Semiconductor Index (SOX), Source: FS Insight, Bloomberg, Optuma Noteworthy among sectors is that relative performance trends for most sectors remain effectively unchanged, after the recent sell-off and bounce this week. In particular, defensive areas such as Utilities, REITs and Staples retraced some of their losses during the June-July sell-off but not enough to signal an important downtrend reversal. Cyclicals obviously lost ground but most are bouncing from oversold levels at key trading support with relative performance still holding above their June lows. Lastly, technology’s relative uptrend has been dented but is by no means broken.
- Technical Strategy
S&P 4000 likely in Q1 2021 - Accumulate near-term weakness
Cyclicals surged this past Monday in response to Pfizer’s vaccine announcement prompting some of our clients to ask whether they should fade the rally given the reacceleration in COVID cases. While I am expecting equity markets to chop sideways in the very short-term to digest their recent gains, I do not recommend fading the recent rally in equities overall nor cyclicals specifically. From my perspective, I continue to see the technical backdrop improving rather than decaying and expect further upside through year-end well into the first quarter. Simply doubling the recent 11+% trading range that developed between September-November would support a move toward S&P 4000 by early-mid Q1. See this week’s chart featured below. More importantly, the longer-term 4-year cycle work I study suggests the current cycle should support equities through 2021 into 2022 before a cycle peak develops. If prior 4-year market cycles in secular bull markets are any guide for the current cycle, then a move toward 4400-4600 is possible before the cycle peaks. Don’t fade the reboundA doubling of the Fall trading range supports a move toward S&P 4000 by early-mid Q1 2021Use near-term weakness to accumulate equities, notably cyclicals. Looking at cyclicals more closely, I would highlight the following key points: First, a growing list of cyclicals, notably industrials, are now in confirmed price and relative performance uptrends versus the S&P 500. That is impressive given how strongly growth stocks have dominated the market this year. Secondly, an expanding list of cyclicals are resolving their June-October trading ranges to the upside. Think about that for a minute. After 4-5 months of uncertainty, a growing number of investors are willing to pay higher prices for these cyclicals presumably in anticipation of better earnings prospects in 2021. Third, the cyclicals stocks hardest hit in 2020, airlines, cruise lines, casinos, hotels, resorts along with banks, are beginning to rally above their declining 200-dma’s. Even the energy sector and more cyclical REITs are showing evidence of bottoming intermediate-term after selling off since June. I am not convinced all these groups are new long-term leadership but their recent action signals that they are incrementally completing bottoming patterns and offer attractive upside into and possibly through 2021. Bottom line: My recommendation continues to be to increase portfolio exposure to cyclicals. Figure: Weekly Sector ReviewSource: Fundstrat, FactSet The strong rally in cyclicals at the beginning of the week has pushed two lagging sectors, financials and energy, above their 50-day moving averages of relative performance vs the S&P 500. Industrials and materials remain in early relative performance uptrends. In contrast, as a consequence of the rotation toward cyclicals away from growth stocks, the technology and consumer discretionary sectors have declined below their 50-day relative performance moving averages. Defense sectors, such as utilities, staples and healthcare remain range bound. After second half October rebound, utilities are again stalling while staples remain weak and healthcare bounces Figure: Best and worst performance sectors over past 3 months
- Technical Strategy
Look to Lagging Cyclicals; UBER Ideally Positioned Technically
Last week I made the case that despite accelerating worries regarding the election, COVID-19, stimulus and the overall economy, a rebound was likely early this past week. Daily momentum was oversold and poised to bottom, the VIX was already showing evidence of peaking at advanced levels, US 10-year yields were firming, and cyclicals were broadly emerging. With election anxiety dissipating this week, equity markets held and rallied from key support at the September lows and the VIX has dropped sharply. I continue to expect the VIX to follow the post-election patterns that developed in 2012 and 2016 which should signal more upside for equities well into 2021. While I was reassured by the equity market’s positive response to technical setup I saw developing late last week, I also had a number of clients question my view on the drop in bond yields and snap rotation back to growth stocks away from cyclical stocks. To be clear, I am not negative on growth stocks, but I had definitely not expected the 10-year bond yield to fall so precipitously on Wednesday, nor had I expected the sharp sell-off in cyclicals. Has my view changed? Absolutely not. In fact, this past week’s market behavior only reinforced my bullish technical outlook for equities into and through 2021 and I continue to see cyclicals as an area of opportunity. At the market level, after this past week’s rebound, I would not be surprised to see equities churn for a week or two to digest the recent gains. However, I would encourage investors to continue building exposure to equities given the long-term technical structure remains positive and a growing list of stocks, notably cyclicals, continue to show evidence of resolving their June-November trading ranges to the upside. UBER illustrates this last point almost perfectly, accelerating above its June-November trading range on a high-volume break out. Of course, the results from the election in California were the catalyst but the break-out pattern is similar to what is developing for many other cyclical stocks that have been in broad trading ranges through Q3 into Q4 of this year. Granted after a 20+% surge this week, many of you may question whether it is too late to buy UBER. I disagree and view UBER’s break out as the beginning of a new bull cycle uptrend that I expect to last through 2021. In addition, relative performance versus the S&P 500 is confirming the recent move as it breaks above the Q1 2020 highs. Bottom Line: While COVID-19 and work from home worries are likely to dominate headlines for many weeks to come, I continue to recommend that investors with a time horizon beyond 3-6 months accumulate near-term weakness in many of the lagging cyclicals stocks that will ultimately be beneficiaries of people returning to work and the economy repairing. I consider UBER to be ideally positioned technically to benefit from our favorable long-term outlook for the market and cyclicals overall. Figure: Weekly Sector ReviewSource: Fundstrat, FactSet Technology snapped back as growth stocks were bid up post this week’s election but remains in a broad trading range that began at the end of August. Discretionary has pulled back but not significantly to conclude a negative trend shift is developing. Despite the selloff in cyclicals, industrials and materials have remained in relative uptrends above their rising 50-day sma’s. Financials briefly pushed above the 50-day sma only to round trip to revisit the low end of their 3-month trading ranges. After second half October rebound, utilities are again stalling while staples remain weak and healthcare bounces Figure: Best and worst performance sectors over past 3 months
- Technical Strategy
Another look back at 2016 as a guide through Q3 weakness
This week’s market sell-off on renewed tariff concerns has understandably alarmed investors to reduce risk and seek safety. However, what I find interesting technically is that this risk-off move continues to track the 2016 market cycle surprisingly well and suggests the correction window will likely be short-lived. As readers here may recall, the 2016 roadmap was an excellent guide navigating the ebb and flow through late Q1 into early Q3. Until I see the technical data notably diverge, the 2016 analog should prove helpful through YE into 2020. Let’s compare the current technical Q3 set-up with Q3 2016 and think about what it might mean for the S&P through year-end. In the summer of 2016, the S&P made marginal new highs only to begin a correction in August (sound familiar?) that conveniently bottomed in at the 40-week (200-day) moving average. A similar correction this Q3 would imply a pullback toward 2780 (-5%) which is also near support at the Q2 lows of 2728. In addition, the proprietary momentum indicator in the bottom panel, tracking the percentage of S&P 500 stocks with positive weekly momentum, is also following the Q3 2016 pattern peaking just above 50%. (See below.) I’ll be looking for this indicator to unwind back to oversold territory over the coming 6- 8 weeks, which, and I’m speculating of course, could be just the right amount of time to resolve the tariff dispute. S&P 500 – 2015-2019Weekly momentum oscillator continues to track 2016 cycle suggesting shallow seasonal pullback into late Q3-early Q4)Source: FS Insight, Bloomberg, Optuma So, as unnerving as this week’s market weakness feels, my expectation is that the S&P will track a similar path through the seasonally weak Q3 as it did in 2016. I fully appreciate many of you may be skeptical of such a simple analogy, but so far, the longerterm, multi-year market cycle remains bullish, with seasonal weakness in Q3 fairly common. Bottom line: Remain patient through the current pullback and be prepared to add to add more cyclical exposure later in Q3 and early Q4.
- Technical Strategy
Swap Exposure to Cyclicals From Safety Stocks...NOW
It’s time for investors to position their portfolios for the change in leadership just beginning to take hold, and this means increasing exposure to the right sectors and groups in 2H19 and well into 2020. There is a burgeoning evidence of a market rotation away from safety stocks, such as utilities and staples, and toward cyclicals, which is likely to significantly impact portfolio performance through year end and well into 2020. As a starting point, I believe investors should have an opinion on where the current market cycle stands. And as regular readers know, I believe the S&P 500 index lows in December 2018 marked another multi-year cycle low at the rising 200-week moving average, similar to what developed in 2016 and 2011. In theory, the current cycle should continue higher over the coming two to three years and looks similar to the four-year market cycle accelerations that developed during the secular bull markets of the 1950-1960s and the 1980-1990s. With the S&P 500 currently tracking the roadmap of a normal four-year cycle, the next question is how best to position a portfolio for the emerging cycle? First, capitalize on changes in sector and group leadership. The most important technical development unfolding in Q3 is the nascent rotation from safety, such as utilities and staples, and towards more cyclical groups. The stock chart of Charles Schwab (SCHW) is particularly noteworthy as an example of a cycle low as it retests and bounces from important support at its rising 200-week moving average. (See below.) SCHW is in the early stages of completing a cycle low at its long-term uptrend (200-week sma)Source: FS Insight, Bloomberg As developed in July 2016, SCHW’s retest of its 200-week moving average appears to be part of a broader bottoming process that is developing for more cyclical groups from semiconductors to industrials to financials. Weekly momentum, which tracks one and two quarter shifts, is in the early stages of turning up from oversold levels and is consistent with a cycle low developing.
- Technical Strategy
Despite Legitimate Concerns, Silver Linings are Developing
Investors are understandably worried that equities markets have peaked, and a more serious, prolonged correction is underway. After all, election uncertainties aggravated by rapidly rising COVID-19 cases, a lack of headway regarding federal stimulus and large-cap technology stocks stumbling during this earnings season are just a few issues unnerving investors’ risk appetite. For those that follow technical analysis, the lower S&P 500 high in October versus the September high followed by the break below the 50-day moving average are additional reasons some investors are justifiably nervous. However, encouraging silver linings are developing - While all of the above are legitimate concerns not to be lightly dismissed, there are a number of technical events I view as encouraging silver linings beginning to develop technically. First, daily momentum indicators, tracking 2-4 week market swings, are becoming oversold suggesting a tactical low is likely to develop within the coming week as the S&P retests support at the September 24 lows near 3209. My expectation is that this indicator will start to bottom within the coming week setting the stage for another upside rally into Thanksgiving and early December. What levels do I view as important to hold? I view range between the September 24 lows at 3109 and the 200-dma at 3166 to be the key support band that needs to hold in the coming week for my optimistic thesis to remain intact. Secondly, while the equity markets have been probing new lows into Friday, the VIX volatility index is stalling at the highs of the past three days. Granted it is very early to state conclusively volatility has peaked but the lack of upside follow through is the type of divergence traders would be looking for as early evidence that the VIX is peaking after its recent surge. Source: FSInsight, Bloomberg, Optuma Third, and arguably most importantly, US 10- and 30-year interest rates have continued show signs of firming despite the risk off behavior seen in equities. Within the bond market the spread between longer term and shorter-term rates has been widening which is generally considered a bullish signal for the economy and cyclical stocks. In addition, real rates, which is the difference between nominal yields and the inflation rate, is also showing signs of bottoming. Granted, these bond market fluctuations are only short-term divergences at this point, but they are not the type of behavior I would expect if investors were positioning for a more protracted correction in stocks. In fact, the behavior in the bond market suggests to me the sell-off in equities is nearing the latter stages of their recent pullback. Lastly, within the equity market, cyclicals are incrementally outperforming as large-cap growth and technology stocks pull back from their impressive surges into late August. If the cyclical stocks were leading the broader market to the downside, I would become more concerned about the equity market. However, so far, their improving relative performance versus the S&P 500 suggests participation is beginning to broaden within the equity market. Figure: Weekly Sector ReviewSource: FSInsight, FactSet Technology’s relative performance remains above its rising 200-day sma but has broken below its rising 50-dma over the past two weeks and continues to weaken. As technology corrects, industrials and materials along with communication services and utilities trend above their 50-day sma’s. Financials are showing early signs of improving but have yet to meaningfully reverse their relative downtrend. Figure: Best and worst performance sectors over past 3 months
- Technical Strategy
Don’t Lose Sight of Improving Technical Backdrop into 2021
One of the biggest benefits of studying technical analysis, observing the change in prices across asset classes, is that it filters out the mainstream and social media noise we are all bombarded with. Investors are overwhelmed with election rhetoric, renewed COVID-19 concerns, stimulus talks that are on and off again every day not to mention the volatility of earnings reports. It’s no wonder equity markets have remained in choppy trading ranges since the beginning of September with many investors struggling for conviction in either direction. I’m obviously biased as a technical analyst, but I am far more interested in what IS changing between and within markets and less concerned with someone’s explanation as to WHY they are changing. As one seasoned portfolio manager with over four decades of experience managing a large international portfolio regularly reminds me “Rob, your job is to identity what IS changing in markets and it’s the media’s job to try to weave together stories that try to explain WHY”. This is a particularly important point to remember at the momentum as the headline drama builds into another election. Why? The first key technical point is to stay focused on the fact that the underlying market cycle, generally measured over a 3-4 years, is rarely disrupted by an election. By my analysis, the current 4-year markets cycle should carry markets higher through 2021 well into 2022 before we see evidence of a cycle peak. Secondly, despite the choppy trading that has developed since the beginning of September, there are a number of bullish internal leadership shifts developing. Growth stocks are pausing but are not breaking down while participation is broadening to a growing number of cyclical groups. I view this rotation to cyclicals as a healthy development for equity markets into and well through year-end. In addition, the behavior of other assets classes remains supportive of the rotation developing within equity markets with 10-year bond yields continuing to show evidence of bottoming. Flowserve (FLS) - A contrarian cyclical recovery idea in the early stages of bottoming. I continue to encourage investors to ignore the headline noise and choppy trading for the coming weeks and to remain positioned in the direction of the improving longer-term cycle. Specifically, use near-term pullbacks to continue broadening portfolio exposure to include more cyclicals as part of a bar-bell portfolio that already includes core positions in many of the leading growth stocks. Fundstrat’s Tom Lee and Ken Xuan publish six thematic portfolios one of which is a PMI Recovery basket. I would encourage investors looking for a list of stocks that should be beneficiaries of an improving economy to review this list. For contrarian investors, I’m highlighting FLS as a laggard within that list that in the very early stages of bottoming as it begins to rally above its 200-dma and reversing its 2020 relative performance downtrend. Figure: Weekly Sector ReviewSource: FSInsight, FactSet Discretionary and technology uptrends intact but pausing while industrials, materials continue to trend above the 50-day moving averages of their relative performance lines versus the S&P 500. Financials have stabilized and are potentially within striking distance of rallying above relative performance downtrends. Stay tuned. Figure: Best and worst performance sectors over past 3 months
- Technical Strategy
AME, ROK, ADSK – Automation Ideas Emerging from Ranges
Near-term choppiness but the long-term cycle backdrop remains bullish - I continue to expect equity markets to remain in a choppy range near-term but would encourage readers to not lose sight of the bullish long-term cycle backdrop. Our market indicators, tracking 2-4 year moves, continue to build to the upside from deeply oversold levels and are unlikely to show evidence of peaking until well into 2021 and likely not until 2022. For reference, the average 4-year cycle return, during secular bull markets, is 100-110%. Obviously, there is no guarantee this will develop, but if history is any guide, then a rally to S&P 4400-4600 (+25-30%) is not unreasonable before a cycle peak develops. In addition, the relative performance of the S&P 500 versus one of the most widely tracked bond indices, the Barclay’s Aggregate Bond Index, recently broke above its 2018-2020 trading range. I view this event as a long-term bullish technical signal that is likely to impact passive and active fund flows well into 2021. Trend following CTA accounts are just one example of the type of funds that will allocate more capital to equities away at the expense of funds. Bullish: Advance-decline lines for the S&P and NYSE are making new cycle highs. While I expect equity markets to remain choppy in the near-term, I would stress it is unlikely to disrupt the ongoing uptrend for equities. Here again I would encourage readers to stay focused on improving market internals. For example, the advance-decline lines for the NYSE and S&P 500 made new all-time cycle highs in the past week indicating more stocks are moving higher not lower. As a general rule of thumb, new A-D line highs is bullish for stocks and suggests new highs are pending for those indices. What to do? AME, ROK and ADSK – 3 Automation ideas emerging from their summer trading ranges. With participation expanding, I continue to encourage investors to broaden exposure within portfolios to more cyclical stocks to complement core positions in growth stocks. AME, ROK and ADSK, are noteworthy timely long ideas within Tom Lee’s list of recommended AI/Automation ideas. These stocks look like the ideal mix of both growth stocks in uptrends but have plenty of exposure to an improving economy in 2021. Similar to most cyclicals, all three stocks paused in June and have traded in broad trading range since. Since September 22-24 however, they are all showing signs of accelerating to the upside and are beginning to break-out to new cycle highs. I recommend using near-term weakness to add to these stocks to broaden portfolio exposure to more cyclical ideas. Figure: Weekly Sector ReviewSource: FSInsight, FactSet Discretionary and technology uptrends intact with industrials and materials again strengthening above 50-dma moving averages of their relative performance trends. Energy and Financials are showing early evidence of bottoming intermediate-term but have yet to show any meaningful improvement in their relative performance trends. Figure: Best and worst performance sectors over past 3 months