The recent stalling out in most US Equity indices over the last week hasn’t taken away from the appeal of the current rally from early August lows. A bullish advance back to new all-time highs is still expected into mid-September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed back to new all-time high territory coinciding with the breakdown in the US Dollar and Treasury yields, and Small-caps have started to kick into gear once again. Furthermore, market breadth remains constructive and sentiment is not yet bullish enough to mark a larger market peak. Cycles show strength into mid-September in both Equities and Treasuries before a selloff takes hold, and sectors like Financials, Healthcare, and Consumer Discretionary have been instrumental in serving as a “tailwind” for Equity gains at a time when Technology has been a bit wobbly. Overall, unless Technology starts to roll over in bigger fashion it looks right to stay bullish.
US Equities were able to show fractional gains on Thursday, as 9 out of 11 sectors finished positive with meaningful movement back to new highs from Financials, Healthcare, Utilities, and Industrials. (While ^SPX 0.24% closed flat, RSP -0.11% finished up +0.37%.)
Thus, despite the continued focus on NVDA after last night’s earnings, and the drop in the stock during Thursday’s session, the broader market managed to chug higher on Thursday, and remains in much better shape technically in the short run when compared to QQQ and SPY.
NVDA, as has been widely reported, had the smallest revenue and EPS beat in 5 quarters, and joins a recent trend of Magnificent 7” names that declined after reporting disappointing guidance.
Yet, no meaningful technical damage happened to NVDA on Thursday’s mild decline, and pullbacks to $117 likely mark an attractive opportunity for this stock.
Meanwhile, market breadth generally remains in good shape overall with nearly 75% of all SPX issues above their respective 200-day moving averages. Additionally, sentiment is not as optimistic as needed to create a top, and DeMark indicators still suggest another four weeks might be necessary before generating weekly exhaustion signals. (Note: I rarely utilize daily Signals alone when studying markets) Furthermore, two weeks of churning near the peak is rarely what precipitates a Fall market decline. (Rather, a sharp decline from the peak following some negative breadth readings following a drying up in buying normally can be important in this regard.)
At present, the opposite seems to be happening: despite the late Thursday intra-day pullback, market breadth was nearly 3/1 bullish with over 1/3 of all 11 sectors having pushed back to new all-time highs this week (outside of Technology.) Investors seem to be growing frustrated with large-cap Technology not moving up as quickly, but there seem to be plenty of moving parts that are working quite well.
QQQ hourly breakout gives reasons for optimism
QQQ generally produced a very positive move on Thursday, despite these early gains having been given back by end of day. The chart below is an hourly QQQ chart showing the breakout which carried price higher into Europe’s close ahead of an afternoon selloff. (The chart below highlights what prices looked like into 12:00 pm EST Noon on Thursday.)
Pullbacks arguably would need to break 464.58 to have any near-term concern. Until/unless that happens, trends are still thought to be pushing higher.
QQQ could hit 485 initially once 478 is exceeded. Targets above 485 lie near 493, then 503, the latter which should prove to be quite strong resistance into mid-September.
Overall, insufficient consolidation has been seen to grow too negative, despite some recent consolidation over the last couple weeks.
SPX remains constructive barring a move under 5561
Below is an updated hourly chart for SPX which fell into Thursday afternoon following an initial breakout, but trends won’t turn bearish unless this week’s lows are violated.
What was particularly interesting about Thursday’s afternoon slide is that it coincided with an uptick in market breadth. Thus, the slide in Technology from +1.80% to +0.70% resulted in US market indices losing most of the morning gains.
Yet, only two sectors finished down on the day, Consumer Staples (based on large percentage declines in DLTR -1.26% and DG -3.20% ) and REITS, while the other nine sectors were positive. Moreover, as mentioned, a number of sectors pushed back to new all-time highs.
Below is the hourly SPX chart showing the key 5561 area representing strong support. Until/unless this area is broken, it’s necessary to stay bullish, expecting that SPX’s early Thursday gains likely pave the way for a push up to 5700.
Industrials joins Healthcare and Financials at new highs
Following up on yesterday’s discussion on Healthcare, it’s important to note that three other sectors have also advanced back to new all-time highs when viewing these on an Equal-weighted basis: Industrials, Financials, and Utilities. (The act of removing the large-cap stocks which dominate these sectors allows us to view the sector in a more broad-based fashion, vs. simply leaning on the large-caps to do all the work.)
As shown below, Industrials pushed back to new all-time highs last Friday on a daily and weekly close, as per the Invesco Equal-weighted Industrials ETF. Thursday’s gains helped last week’s breakout to extend, with RSPN finishing Thursday 8/29 at $48.87.
Stocks like AXON 1.33% , HWM 0.37% , CHRW -1.28% , UBER -1.75% , GEV, EFX 1.06% , and TDG 0.46% have been particularly instrumental in driving recent outperformance, as all the stocks above have shown better than 10% gains in the rolling 1-month period ending 8/29/24.
Overall, the Industrials sector still looks excellent, technically speaking, and is right to overweight for 2H 2024.
Financials also stands to make a new all-time high weekly and monthly close at current levels, if prices hold above $67.55 by Friday’s close.
Financials also has pushed back to new all-time highs after nine of the last 11 weeks have produced positive gains.
This week’s move above January 2022’s weekly high close of $67.55 officially marks a new all-time high weekly close at current levels and unless this is given up on Friday, it’s also right to include Financials as being a sector that’s back at record highs.
Many of the outperformers have come from the Insurance sub-industry, with PGR 0.06% , AFL 1.25% , GL 1.44% , ACGL 0.20% representing four of the top five performing stocks over the past rolling 1-month period ending 8/29/24. (Interestingly enough, both BAC 0.03% and C 0.36% have been lower over the last month.)
Equal-weighted S&P 500 continues to make headway vs. SPX given Technology’s recent underperformance
While Technology has seen enough volatility that it might be difficult for this sector to rally back to new highs right away, it does still seem prudent to favor our recent broad-based rally continuing.
Moreover, it still looks likely that RSP (Equal-weighted S&P 500) could outperform SPY (which is heavily Technology dominated) in the weeks ahead.
The ratio chart below of RSP to SPY shows a meaningful intermediate-term breakout in the ratio of RSP to SPY, and following a minor pullback into early August, has managed to rebound sharply.
This remains a bullish chart technically and the ability to surpass August peaks would allow for an even larger amount of outperformance and relative strength out of RSP vs SPY.
Bottom line, the fact that more than 1/3 of all major sectors are now pushing back to all-time highs is seen as quite bullish at a time when many are growing more skittish about Technology’s prospects. This can be clearly seen by outperformance in RSP vs SPY and points to a broad-based rally, in my view, despite the continued focus on Technology.
Biotech also breaking out and looks like another bullish sub-industry within Healthcare
Yesterday I discussed healthcare services along with Medical devices as both turning higher, and that the Medical Care stocks might be the area to favor.
The chart below is also worth highlighting as this shows Biotech breaking out to the highest levels in more than two years when looking at IBB 0.02% (Ishares Biotechnology ETF).
REGN -0.63% , GILD 1.26% , AMGN -0.18% , VRTX -1.35% and IQV 0.17% as the top five holdings represent more than 1/3 of this ETF.
However, this is a very bullish advance this week and should bring about further outperformance by IBB. Other areas which represent Biotech but are a bit more diversified like XBI 0.19% (SPDR S&P Biotech ETF) have not yet made this breakout, but appear ready to push to new highs in the week(s) to come. Movement back above $103 in XBI would allow for a rally up to $110-$115.
