Technical Strategy Video:

Materials hitting new all-time highs bullish as rally gets back on track

Key Takeaways

  • Equities taking minor breather this week, after five straight weeks of gains, though trends still bullish for move back to new highs
  • Treasury yields pushing back higher this past week and should advance to test/break October highs in yield by a brief amount before stalling/reversing back lower
  • Materials sector hitting new all-time highs this week, joining Financials, Industrials as the latest group to strengthen back to new highs. This group should be overweighted

This week’s minor pullback failed to do much damage and Friday’s snapback rally helped the rally from early October get back on track. SPX experienced its first negative week after five consecutive weeks of gains. Yet, Elliott—wave structure still suggests SPX can push back higher into next week over 4750 with ideal targets at 4765 to 4773. Time cycles suggest rallies into 11/18-19th might encounter strong resistance, reversing course and weakening into late November before additional strength happens into December.

Materials hitting new all-time highs bullish as rally gets back on track
Source: TradingView

Materials pushing back to new highs makes this group the latest to benefit from rotation. Outperformance in Materials likely in the weeks/months to come.

Equal and cap-weighted ETF’s for Materials made the highest weekly close of all-time Friday, 11/12 and this bodes well for further strength/outperformance

US Dollar pushing back to multi-month highs has had little to no effect on Materials, but it’s expected that the move in Precious Metals stocks will start to accelerate once DXY starts to rollover.

Stocks favored in this group technically include: APD, ECL, SEE, CE, AVY, CTVA, VMC, BLL, while the Precious Metals names would take on greater focus once these consolidate into late November

RTM, the Invesco Equal-weighted Materials ETF, has just broken out of its triangle pattern that’s held prices intact from five months ago. This is a technical positive for Materials, and this group is one of my top technical picks for positioning between now and Year-End.

Materials hitting new all-time highs bullish as rally gets back on track
Source: Optuma

Retail/Leisure & Entertainment looks appealing to buy on recent weakness

The Invesco Dynamic Leisure and Entertainment ETF has pulled back to what’s considered to be an excellent risk/reward for this group heading into next week

Technically speaking, this pattern represents a giant Triangle pattern, and prices are down to attractive trendline support that’s held in recent months.

This group retreated this past week given Consumer Discretionary weakness which proved to be this past week’s worst performing group, but still one of the three SPX GICS Level 1 sectors higher by more than 10% over the last month.

Given the rotation into Retail which sparked a move back to new all-time highs in Retail ETF, XRT in recent weeks, this minor pullback should prove to be an appealing chance to buy dips

Materials hitting new all-time highs bullish as rally gets back on track
Source: TradingView

Finally, Treasury yields jumped this past week after inflation data proved to be much hotter than expectations. It’s expected that yields likely turn higher over the next 1-2 weeks and TNX should push back higher to challenge 1.70-1.75% before pulling back into early December.

As daily charts show for TNX, the CBOE US 10-Year Treasury index broke out of its recent downtrend over the last couple days. This sets the course for yields back higher to challenge highs; however, it’s not expected that TNX climbs above 1.90% right away, and a Treasury selloff should prove temporary before yields pull back into December.

Financials are likely to outperform in the next few weeks given thoughts of Yields pressing higher. Triangle patterns are present in ETF’s for this group, like XLF and RYF, and these should be resolved by upside breakouts that lead Financials back to new all-time highs yet again.

Materials hitting new all-time highs bullish as rally gets back on track
Source: TradingView
Disclosures (show)

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