Technical Strategy Video (Recorded Friday, November 5th):

Mean-Reversion bounce in Airlines, Casinos looks to be underway

Key Takeaways

  • Trends growing stretched with RSI on daily and weekly above 70; Yet, no evidence of any exhaustion or trend reversal, and it remains correct to favor more upside
  • Airlines and Casinos are finally starting to participate after a lackluster few months. This mean reversion should carry these groups higher to play Catch-up
  • Growth breaking back out vs Value this week given FANG outperformance

Parabolic Melt-up continues for SPX. While momentum has officially reached overbought levels as per daily and weekly RSI, the broadening out in participation is seen as bullish, not a reason to sell. Minor pullbacks still look buyable, and SPX should initially reach targets near 4765.

Mean-Reversion bounce in Airlines, Casinos looks to be underway
Source: Trading View

Airlines, Casinos, and other laggard areas within Leisure & Entertainment snapping back

Friday brought about some huge mean reversion bounces in many of the formerly laggard areas within Consumer Discretionary and Transportation, and Airlines were a key beneficiary. This surge brought the US Global Jets ETF, (JETS) to levels right near key downtrends which have kept this group under pressure since March. Snapback rallies in Airlines & Casinos in particular, look to continue in the weeks to come.

Mean-Reversion bounce in Airlines, Casinos looks to be underway
Source: TradingView

Conversely, many “Stay-at-Home” stocks are now rapidly falling out of favor, as algorithms kick in that are causing many, like PTON below, to violate meaningful support. This particular Head and Shoulders pattern being violated by Peloton on the heaviest volume in months, makes buying dips treacherous.

Mean-Reversion bounce in Airlines, Casinos looks to be underway
Source: TradingView

Growth breaking out of a giant consolidation vs Value.

One key technical development of the past week is the extent to which Small-caps have staged a comeback, while Large-Caps have been dominated by outperformance in the “FANG” group yet again, the stocks associated with High Growth Technology and Consumer Discretionary. Specifically, it looks like Growth outperformance over Value could accelerate in the weeks to come. As seen below, the ratio of Growth to Value, as shown below, has just exceeded both September 2021 as well as September 2020 peaks on ratio charts. This pattern takes the shape of a giant Reverse Cup and Handle pattern, and exceeding the “neckline” (the area of September 2020 and 2021 peaks) is a bullish technical development and should lead Growth outperformance to continue.

Mean-Reversion bounce in Airlines, Casinos looks to be underway
Source: Optuma
Disclosures (show)

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