Wednesday’s roller-coaster ride post CPI report failed to answer many questions on the near-term direction for US stock indices, and movement lower under the ongoing uptrend line will be necessary towards suggesting any sort of larger pullback is getting underway.
For market bears, this requires a decline under SPX 3940, while market bulls require a firm breakout back over SPX 4200.
Interestingly enough, despite the churning happening recently in major indices like SPX and NASDAQ Composite, breadth has been improving, given the strength which has occurred in Industrials, Materials, Energy and Healthcare of late.
Specifically, SPX has been largely flat over the last week with returns of +0.04%. However, Equal-weighted Industrials, Financials, Energy, Materials and Real Estate have been higher by +0.90% or greater.
This SPX underperformance largely stems from declines in CZR 5.27% , AAL -1.19% , MTCH -0.21% , DISH, BLL, TSLA -3.53% which have lost more than 6%. Moreover, key Technology names like KLAC 3.14% , AMAT 2.00% , ADI 1.82% , ADBE 0.60% , QRVO 2.38% , and AMD 0.03% have all lost more than 3%.
As discussed last night, Technology arguably has not shown sufficient deterioration to avoid this sector, and until there is evidence of Tech breaking multi-month uptrends vs SPX, recent weakness should be buyable.
Daily SPX charts show the recent churning in price as part of the existing uptrend from mid-March. More evidence of either trend deterioration or broad-based strength above SPX 4200 will be necessary to gain near-term conviction.
WTI Crude has advanced to new highs for 2023
Energy looks likely to continue to strengthen given WTI Crude’s push back to new highs for the year. Daily WTI Crude charts show this breakout above the consolidation of the past week.
This level also represented trendline resistance connecting former highs in Crude going back since December 2022.
XOP 1.22% looks to be the more appealing way to play Energy for investors technically, given the recent rally in Crude. Weekly closes back above $136 in XOP should lead up to 147 and eventually lead back to gest last November’s peaks at $160.
Overall, the combination of bearish sentiment, bullish seasonality and cycles along with newfound price strength in Crude and Energy as a sector makes this an ongoing technical overweight for 2023.
Biotech is slowly but surely trying to emerge
Biotechnology looks to be gradually starting to strengthen, which should be a positive factor for Healthcare in the weeks/months to come.
Thus far, the rapid rally in Healthcare back to multi-week highs in relative terms vs SPX has not really been widespread across this sector.
Pharmaceutical stocks have largely led performance, while Biotech has been mostly led by large-Cap Biotech.
However, charts of XBI 0.19% , the SPDR Series Trust S&P Biotech ETF, show the downtrend having been broken in XBI, and despite Wednesday’s minor negative reversal in the broader market, trends remain higher from mid-March.
Momentum remains positively sloped and not overbought, and XBI 0.19% is nearing a period of bullish seasonality, as the time from May into August is normally a period of outperformance for Biotech, specifically the month of June.
Overall, I suspect that rallies back to the low to mid-$80’s can occur in XBI, and any hint of the FOMC halting its rate hikes likely will result in a further return to growth. This should help the Biotech sector, and this sub-industry along with the broader Healthcare sector look appealing.
Airlines look to be weakening again after failed bounce
AAL -1.19% ’s lowering of its preliminary profit forecast Wednesday resulted in a large decline in many Airline issues and this S&P GICS Level 3 group proved to be the worst of the 69 groups which make up the Level 3 sub-sectors, dropping nearly 4%.
Airlines have proven to be a big laggard over the last one- and three-month periods, and Wednesday’s price action likely leads this group to additional weakness in the days/weeks to come.
Weekly charts of JETS -1.17% , the US Global Jets ETF, shows the breakdown in trends back in early March, and the failed bounce attempt over the last few weeks now looks to be turning back lower.
Thus, while Transports have attempted to stabilize and rally in recent weeks, this particular sub-industry group within Transports, the Airlines, looks to weaken further given JETS -1.17% pullback to new weekly lows.
Until/unless JETS can regain the area of its uptrend line which was violated last month, Airlines are thought to be vulnerable to further declines over the next few months, and recent weakness does not look like an immediate buying opportunity. Investor’s Business Daily charts by Marketsmith of JETS -1.17% are shown below.
