Technical Strategy Video (Recorded Friday, October 22nd):
Key Takeaways
- Healthcare, Consumer Discretionary snapping back sharply this week, and six sectors are recording gains of more than 2% over the rolling five—day stretch. Discretionary moved back to new all-time highs on an Equal-weighted basis this week
- Transportation now higher by 12% in the first three weeks of October, helping to recoup much of its weakness from May. Most sub-sectors tied to Supply shortages, i.e. Trucking, shipping, Logistics are outperforming sharply in the near—term
- Sentiment has gotten more bullish as a result of the last three weeks of rally. The 10/21 AAII data showed nearly a 20% spread now of Bulls over Bears, the highest since early September, with Bullish percentages up to nearly 47% while Bears lie at 27.8%
- “Reopening trades” like Cruise-liners, Casinos, Airlines, and some of the Brick and Mortar Retailing, have started to lag sharply again, despite a recent decrease in COVID deaths
Following SPX having completed its third consecutive weekly positive close, it’s interesting to note that the minor stalling out near September highs hasn’t detracted from the positive trend whatsoever this week. SPX managed to record a new all-time high weekly close above the prior 4535.42 level from the first week of September. Weekly momentum is still negatively sloped, though daily is positive and momentum gauges like RSI are not overbought. Any pullback early next week should constitute a buying opportunity for further gains with Technical targets found near 4600, then 4765.
Healthcare rebound considered a big “Plus” for SPX
This week’s snapback in Healthcare is considered a necessary Tailwind for markets, and as shown below, Invesco’s Equal-weighted Healthcare ETF (RYH) has broken out above downtrends from September on both an absolute basis and relative to the SPX. Healthcare and Equipment remains a stronger sub-group of Healthcare than Pharma/Biotech.
Sentiment – Bullish readings now at highest since early September per AAII poll
Sentiment gauges have gotten more bullish as of this week’s AAII reading. Percentage bulls now stand near 47% while bears are 28.8%. While the BofA Global Portfolio Manager Survey was the least Bullish since October 2020, this failed to include the last three weeks of rally, which have turned many market participants more optimistic.
Transportation continuing to show above—average strength in October and after months of underperformance and lagging, this index ( as of Friday’s close) record a new all-time monthly high close at the end of October. After having fallen 10% off May peaks, this group had been lagging substantially, but has come back to life in a big way. Sub-groups like Shipping, Trucking, Logistics have helped to pave the way for 12% gains in the first three weeks of October. Meanwhile, Airlines, which many feel should be a crucial part of Transportation, remain laggards and continue to be an area to underweight technically. As the daily chart shows below, the DJ Transportation Average has risen over 1700 points since the late September lows, far outpacing many other sectors. Given the positive momentum and recent acceleration, this will be something to embrace and buy dips if given the chance for a move back to new all-time highs into November/December.
Cycle composite shows strength into Mid—November – Finally, it’s worth noting that the Mass Pressure index, made popular by the late W.D. Gann, a cycle composite representing an overlay of various different cyclical lengths all put together, shows 2021 to have a decidedly upward bias into mid-November of this year, followed by a rebound into December. This has been quite accurate thus far in 2021 in showing a flattening out in performance starting in the late Spring (when Value line, NY Composite, DJ Transports, and DJIA all peaked initially for 2021) September had a negative bias, and then this composite turned higher as of October 4. The minor stalling (at the place of the Arrow on the chart) on October 22 proves short-lived into October 26, before turning up sharply into mid-November.
