Technical Strategy Video:
Key Takeaways
- SPX 3-day gain has recouped more than 50% of the weakness from early January
- Re-opening Trade looks to be kicking into gear, with sharp gains out of Casinos, Airlines, and Cruiseliners
- Energy remains well positioned to outperform; E&Ps should be favored
The Follow-through continues!! February got off to a good start, representing the third straight day of gains and pushing up over 250 SPX points off the lows. Breadth was positive by 2.5/1 bullish and four major S&P SPDR ETF’s managed to turn in gains of 1% or greater: Financials, Materials, Discretionary, and Energy. Overall, I expect this bounce to take the shape of “Two-steps forward, one-step back” but little to no real resistance at this point until 4582 which represents 1/10/22 intra-day lows. The ability to exceed this would go a long way towards suggesting a push back to new highs is possible. Until then, the upside might be limited to another 30-40 points before some consolidation sets in. Overall, it’s right to have a bullish stance into the middle part of March, using dips as a chance to buy.
Re-Opening Trade showing some signs of Life after a dismal 8 months
Cruise-liners look to be bottoming. CCL -2.49% and RCL 0.02% were both higher by more than 4% in Tuesday’s trade
Airlines also appear to have turned up sharply and should make upside progress
Casinos showed some of the best gains within Consumer Discretionary’s gains on Tuesday. This area is ripe to expect further near-term outperformance as well.
Overall, these three areas all look to be part of the same Re-opening trade. Given that COVID-19 cases have begun to roll over in many states, per Fundstrat’s research, this makes sense as a laggard group which might participate as Omicron cases begin to wane.
As the US Global Jets ETF (JETS -1.18% ) shows, which is a proxy for the Airlines, Tuesday’s gains were nearly 5% and should result in a bounce back to this area of trendline resistance. While intermediate-term trends remain down for these groups, short-term momentum experienced a notable uptick that looks like a technical positive for the Re-opening trade for those that like buying laggards that are suddenly coming back to life. Further gains expected.
Transports also showing some promising rebound signals on Tuesday
The DJ Transportation Average managed to climb back above areas of former trading lows from December, ($15,423) an area that is normally important now on the upside to gains as resistance. Given that prices are now over this level support near the White line on its daily chart, this is an encouraging and bullish development technically. Stocks like UPS 0.39% led gains in this group given breakouts of its multi-month base, while the Airlines aided in this group’s success on Tuesday as well. Overall, Transports are in better shape technically given Tuesday’s price action, and I expect some further mean reversion bounce in this space.
Exploration and Production looks quite Bullish within Energy – Energy, meanwhile, continues to show impressive technical strength, with many of the leading Integrated names having broken out of multi-year downtrends. Technically speaking, the Exploration and Production stocks have lagged Integrated Oils and also Oil Service names lately, which I attribute to underperformance during a time of market volatility. However, charts of the SPDR S&P Exploration and Production ETF, (XOP -1.67% ) has formed a very bullish chart formation normally referred to as a Cup and Handle pattern. It’s anticipated that Tuesday’s gains should push up and break out above $112.95, and this group can outperform both XLE -0.96% and OIH -1.15% in the weeks/months to come. Thus, one should position long in XOP, expecting a further rally up to technical targets near $120, using dips to add to longs.
