Technical Strategy Video (Recorded Wednesday, October 20th):
Key Takeaways
- SPX reaching all-time highs is thought to be constructive, yet could face near-term resistance at these levels. NASDAQ lower today and has lagged rally of late
- Healthcare continuing to outperform, following through on yesterday’s XLV 1.41% breakout; Medical Devices, Services and Pharma are showing very good strength
- Small caps and Transports both showing above-average strength on Wednesday’s gains
S&P might stall out on this first retest of All-time highs from last month, as hourly momentum has gotten a bit stretched on this move and both SPX and DJIA look to be at important levels that haven’t been tested for more than a month. Pullbacks likely to prove short-lived & buyable, and should not undercut 4430. Overall, trends remain short-term bullish, but just extended after six straight days.
What a rally!! Just in the last six trading days alone, S&P has gained over 4%, and Wednesday’s close came within a whisker of new all-time highs. Trends are bullish near-term, yet stretched, and this is though to be the first real area of importance to this rally. A temporary stalling out would make perfect sense here technically as hourly momentum has gotten overbought. Yet pullbacks should prove temporary, before mounting yet another rally back to new all-time highs which should push to levels near 4600 initially and then technical targets near 4765.
NASDAQ has lagged on this move, yet some impressive outperformance out of some of the formerly lagging sectors like Transportation which have suddenly come back to life. Consumer Discretionary has pushed back to new highs to join Financials, and we’ve seen signs of Healthcare suddenly springing to life. This has certainly been something to celebrate for market bulls, as this group is weighted 2nd in capitalization within SPX. Thus, while breadth had lagged a bit with Healthcare underperforming, if this springs back to life further along with Technology and Financials, this should be a meaningful tailwind to our rally.
Outside of Equities, Yields continue to press higher, but largely on the short-to-medium part of the curve, while the Dollar has consolidated gains lately. Yet, the US Dollar still looks likely to strengthen back to levels near 95.50-96 in DXY which should prove to be a bearish factor for EM, and Commodities temporarily before the Dollar possibly peaks out in November or early December. At present the recent bounces in the precious metals are thought to be counter-trend moves and not the start of a new move higher. China’s rally off the lows has been impressive; Yet, a back-and-fill of this into November would make more sense to buy into, as momentum starts to stabilize, and diverge positively on any decline.
Overall, a market that’s definitely shown some impressive technical strength from many different areas in the last couple weeks that give encouragement that a united push back to new highs can happen. If/when sentiment starts to meaningfully get more bullish with longer-term momentum still weak, this could give some warning signs into late November/December. At present, trends, momentum and breadth have improved and support the call for an Everything rally to materialize. This looks to slowly but surely be underway.
Healthcare making even further progress and should be favored for outperformance
Healthcare space is now outperforming for the 2nd straight session, with strength across the group, but many Healthcare Services and Devices stocks with earnings are showing very good snapbacks.
Healthcare Services ETF (XHS -1.17% ) (shown in the chart below) has climbed above its former lows from mid-August along with having surpassed its downtrend. This should allow for even further gains in the weeks/months to come. Technical targets lie at 110-112
Small Caps outperforming, but still largely range-bound. As daily IWM charts show below, Russell 2k remains within the same range it’s occupied since May. This isn’t a bearish pattern, and the sideways consolidation should be expected to push higher to new high territory into November 2021. IWM outperformance over SPY, QQQ is largely due to Technology underperformance, than any real breakout in Small caps. Yet, the resilience of this area holding up in a range-bound pattern despite Equity indices selling off in September gives hope for a push back to new highs into late Q4, even if temporary. This looks to be the preferred technical scenario at this time.
Insurance breakout extending as rates continue higher. Technically we discussed the movement in Financials and touched on Insurance, but this group is proving to be quite strong, outperforming all other S&P GICS Level 2 groups in Wednesday’s trading. This Triangle pattern is being broken to the upside, which is bullish, suggesting additional outperformance from these names. Stocks like ITIC, BRO, MMC, FNF, FAG, STC, PRI, PRU, AIG, are among the best from this group, technically speaking.
