“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials

Technical Strategy Video (Recorded Wednesday, October 27th):

“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials

Key Takeaways

  • Stalling out for market has given way to minor consolidation, while Technology and Growth trade outperform with “FAANG” outperformance
  • Treasury yield breakdown looks important, particularly on the long end, which resulted in Financials underperforming
  • Breakout in Solar Energy makes this sub-sector one to continue to favor within Energy

As discussed in yesterday’s report, several indices were at/near prior highs, (DJIA, Dow Jones Transportation Avg, Equal-weighted Technology, which combined with DeMark based exhaustion developing, suggested a slowdown was possible this week.  Technically this should prove short-lived only in duration and magnitude, leading to a bounce back to highs into mid-November.

“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials
Source: TradingView

Solar stocks begin to play Catchup

  • Technical breakouts in Invesco’s Solar ETF, ( TAN) looks important in helping this group kick into gear after some lengthy consolidation for much of this year.
  • Rotation into some of the former Energy laggards looks to be happening, and as discussed in recent days, this might help the Alt. energy space. 
  • Stocks like FSLR, SEDG, ENPH are attractive to buy on dips, and any weakness in the days ahead should represent an even better risk/reward for these names, and/or for  TAN.
  • TAN finished at the highest levels since February 2021 which bodes well for relative strength picking up in this group.
“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials
Source: Symbolik

Yield move looks important and might cause temporary Financials underperformance

  • 2, 5 and 10-year yields plummeted Wednesday in what looks to be a technical negative for yields into November’s FOMC.
  • One-month uptrends in yields were broken in the front-to-mid part of the curve, while 30-year yields finished down over 5.4% and the yield curve flattened out dramatically
  • Elliott structure looks negative for yields given the extent of this weakness in recent days.  Thus, even on a mild bounce in yields, the bigger picture has turned more negative into November.  This might cause some slowdown in Financials

US 30-year Treasury Yield-daily chart (Below)

“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials
Source: TradingView

Growth has turned higher sharply through much of October and now the ratio of Growth/Value as per (iShares Growth ETF -IVW) vs the (iShares Value ETF- IVE) is now nearing critical resistance as part of a larger bullish base.   Any breakout in relative terms of August highs would drive this ratio meaningfully higher, supporting the idea of further growth outperformance.

“FANG” strength buoys Growth trade, while Yield curve flattening drives down Financials
Source: Optuma

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