Healthcare likely underperforms into late April; Lowering to Neutral
I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While price action has been a bit more subdued in recent weeks following momentum gauges having gotten overbought, there remains precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff. Rallies up to SPX-5350-5400 are definitely technically possible into mid-April before a consolidation gets underway. Both Treasury yields and US Dollar should be starting to roll over.
Another largely uneventful day where indices finished at a slight loss, which now represents three straight days of losses and four days where the closing price was below the opening print.
However, as the daily SPX chart below illustrates, SPX has barely retraced 38.2% of the low to high range just since 3/15 which marked the recent swing low of the current uptrend.
Until this area at $5104 is broken on a daily close, it pays to view this minor weakness as buyable, and as consolidation that makes SPX appealing for a further advance up to 5350-5400.
Groups like Technology have shown just minor consolidation, while not having done any technical damage. Additionally, other groups like Energy and Materials have shown strength, which could make further near-term outperformance possible.
The recent underperformance in Healthcare, however, is important to mention, as this sector represents the 2nd largest sector in the SPX behind Technology, and further underperformance in Healthcare looks possible. ( I discuss this sector in further detail later in this report.)
At present, this SPX weakness very well could bottom out in the near-term between 5184-5205 before turning back higher to test and exceed 3/21 intra-day peaks at 5261.10. If this occurs, then roughly a 100-point rally is expected into mid-April which would likely find resistance between 5350-5400.
As seen below, despite the multiple days of declines, SPX has shown no trend damage.
Healthcare turning down on relative basis; Lowering to technical Neutral from Overweight; Outperformance will take time
Unfortunately, Healthcare failed to follow-through on the initial bounce off November, which successfully broke out above this sector’s seven-month downtrend vs. the S&P 500.
The January 2024 breakout proved short-lived, and Healthcare has now underperformed all other 10 Sector’s Equal-weighted and Cap-weighted ETF’s in the rolling one-month period ending 3/26/24 with returns of a negative -1.77% for XLV 0.01% while the Equal-weighed Healthcare ETF RSPH 0.39% has been lower by -0.19%, despite an Equal-weighted S&P 500 gain of +2.64% (through 3/26/24).
Relative charts of RSPH 0.39% to RSP 0.04% have broken down from its minor bounce off November lows, and looks premature to bottom out as the 1st quarter nears its close.
Overall, I feel like a lesser weight is correct in Healthcare, technically speaking, until more evidence of this group bottoming out occurs.
June and July historically are quite positive for Healthcare seasonally speaking, so I anticipate that any absolute and/or relative weakness into late April and/or May might prove to be a better time to revisit this sector. At present, additional underperformance looks likely over the next month vs. the broader market, in my view.
Tesla’s technical trend remains bearish; Yet, cyclical strength on daily and weekly basis looks likely
Last week’s UPTICKS report contained a new addition for Tesla (TSLA -1.10% ) which might have been a surprise for many who follow my trend following style.
This was not selected based on traditional technical methods, but based on a rare confluence of both daily and weekly cyclical trends which argue for a sharp bounce in this stock in the weeks and months ahead.
I had pinpointed in earlier analyses last month that early March to early April was a window for TSLA to potentially bottom based on extrapolating former low to high swings and projecting forward in time.
As shown below the daily TSLA cycle composite (which has heavy reliance on the 108 trading day cycle and 226-day cycle) combine with another few shorter-term cycles of importance to show the stock possibly turning higher from March into May.
While more technically is necessary to weigh in regarding TSLA having bottomed using trend following technical tools, I view this daily cycle to have bottomed last week.
Moreover, the Elliott-wave pattern of the entire decline from November 2021 looks quite choppy and overlapping which could represent a counter-trend wave.
In plain English, this means that an eventual move back to new all-time highs is quite possible for TSLA using this analysis.
I had originally written that an advance to $183 was initially possible in TSLA and this happened on Tuesday 3/26 before a late day reversal. Overall, I suspect that getting back over $183 on a close is essential to leading TSLA higher in a trend following manner back to $220 and then $245.
Bottom line, despite a negative three-month trend as part of an ongoing bearish nine-month trend (which also is part of an intermediate-term two-year downtrend) I feel like TSLA should be gradually starting to bottom out, based on cycles.
I cannot say with confidence at this time that TSLA should move up right away until this downtrend line at $183 is broken on a daily close. Thus, TSLA very well could prove volatile for those with a timeframe less than 1-2 months. I do not feel that utilizing options to speculate on short-term gains makes sense given possible volatility and lack of a current uptrend.
However, on a 9-12 month basis, it looks right to take a stand based on the confluence of several cycle composites which show TSLA starting to rise, and I will gain confidence in long positions on a weekly close over $183. The daily cycle composite is shown below which trends up sharply into May, and the weekly cycle composite is also shown below.
(Note, the pink line represents amplitude, not magnitude. Thus, this is a projection only and TSLA does not require a rise to the peaks, nor a decline to troughs shown below. The turns are more important than the magnitude of the move, which is an important concept)
TSLA weekly cycle composite also starts to point higher meaningfully between now and 2025 before peaking in 2026
Interestingly enough, the weekly cycle composite for TSLA going back since 2010 also shows a potential bottom at work at this time, which I expect should be in place between now and May.
Weekly cycles, when combined in a composite, rise steadily this year. This gives me some optimism that its current downtrend might very well be close to reversing course and might have happened in the last week.
As mentioned above, it’s proper to await a weekly close back above $183 before anticipating a sharp rise. However, this confluence of daily and weekly cycles makes it important to keep a close watch on TSLA in the weeks to come. I’ll be revisiting these comments once TSLA regains $183 on a weekly close, if/when that occurs.
Airlines look to be on the verge of a possible larger breakout
I discussed the US Global JETS ETF last Fall as being positioned for a short-term bounce.
Now this group has risen to challenge a more important downtrend which spans over four years in duration.
Initially, any move back over $21 would be important technically in exceeding the downtrend since early 2020, in my view. Furthermore, rising above July 2023 peaks near $23.50 would also be important and likely result in JETS advancing to the low $30’s.
RYAAY -0.06% , SKYW, DAL 0.08% and the ADR of Embraer (ERJ 3.96% ) are preferred technical candidates within the Airline industry. Stocks like UAL, AAL -1.77% and/or LUV -0.84% are clear underperformers and require more technical progress to find attractive.
However, given the possible upcoming breakout in JETS, this ETF along with the entire Airline sector should be watched carefully in the days and weeks to come for signs of possible further outperformance.
