Very encouraging broad market rally and above-average strength from Small-caps and Healthcare
- SPX and QQQ should extend gains into/post FOMC with AMZN, AAPL earnings
- Small-caps achieved minor breakout, yet more strength needed relative to SPX
- Healthcare turned up sharply and looks well positioned to bounce further to upside
Last week’s Equity rally has started to strengthen to kick off the new week and should carry SPX initially up to test March peaks, with additional target found near 5400. Both US Dollar and Treasury yields have shown initial signs of trying to turn back lower and last week’s Technology earnings looked impressive in turning indices up sharply following the passage of a key cycle date. Overall, I expect that a further broadening out in this Equity rally is likely into/after AMZN earnings and this week’s Fed meeting.
The gains in the broader market when excluding big-cap Tech proved to be far stronger than the end result in SPX and QQQ, giving some confidence that the US Equity market rally is starting to broaden out.
While Materials and Utilities proved to be the only two sectors which were higher than 1.00% in Monday’s session, Industrials, Discretionary and Healthcare made very important technical moves that arguably improve the odds of these sectors starting to strengthen more in the days ahead.
Overall, SPX’s +0.32% gains paled to the +0.70% gains out of the Equal-weighted SPX, and Small-caps also showed gains of more than +0.80%, a very strong showing.
Looking at daily RSP -0.16% charts, prices have continued to escalate higher after having exceeded last week’s highs, and look to be on a direct course with the prior peaks from this past March. It’s a positive that RSP has begun to push higher at a faster rate than SPX after the initial outperformance by Technology. Seeing evidence of Healthcare, Industrials, Consumer Discretionary and Financials coming back should be a promising sign for US Equities.
Invesco S&P 500 Equal Weight
AAPL might hold the key for Technology, and is up against initial resistance ahead of this week’s Earnings
AAPL has begun to show some constructive ability to push higher after its bottoming out and trend reversal off the lows last week.
It’s Monday intra-day gains hit $175 which is thought to be important to the stock’s trend, and thus far this level has held.
However, weekly momentum has begun to get stronger, and any move back over $175, which is likely post earnings, in my view, should serve as a tailwind for additional gains in Technology.
QQQ has a similarly important level at $435 which coincides with $175 in AAPL, and the act of getting above these would help to add confidence of a sharp rally into May, led by Technology.
AppleInc.
Healthcare showing some evidence that a snapback rally is getting underway
Invesco’s Equal-weighted Healthcare finished at the highest levels since last Tuesday today (4/29) and bodes well for continued gains which could help retest former highs hit in March.
Gains from stocks like BIIB -2.24% , AMGN -1.35% , DGX 1.17% were particularly important in helping Healthcare outperform on Monday, and gains looked to be broad-based across the various sub-sectors.
Medical Devices, Healthcare Services, Pharmaceutical stocks along with Biotech all strengthened meaningfully and makes it likely that this group can kick into gear and show better relative strength than has been the case in recent months.
I raised Healthcare to a technical Overweight last week and anticipate further outperformance out of this sector.
Invesco S&P 500 Equal Weight Health Care
Small-cap strength looks likely, but broader outperformance might still take some time
Russell 2000 made a significant and positive move Monday, rising back over last week’s highs and exceeding the one-month downtrend in the process. Using IWM -0.71% as a gauge for Small-caps, the Ishares Russell 2000 ETF, this ETF also recouped prior lows made in mid-March, which was a technical positive.
Overall, this does set the stage for Russell 2000 gains, technically speaking. I expect that IWM should rise back to test late March peaks just under $212. Thus, it is right to be bullish on Small-caps.
However, it’s still technically hard to make the bet that Small-caps should meaningfully outperform Large-caps until/unless interest rates start to turn down meaningfully.
At present, the intermediate-term downtrend in the relative chart of IWM to SPX remains intact. While Small-caps have shown some minor outperformance in the last week compared to Large, there hasn’t been significant enough relative strength to warrant intermediate-term outperformance just yet, technically speaking.
Thus, gains look possible, yet it’s still difficult to claim outperformance from Small-caps.
iShares Russell 2000
