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S&P Sector Review, and stocks to favor technically

September 6, 2016

S&P SEPT FUTURES (SPU6)
Contact: info@newtonadvisor.com

2167-8, 2155-7, 2141-3, 2119-20, 2086      Support
2184-6, 2191-2, 2210, 2214-6                     Resistance

 

S&P resilience last Friday following the less than stellar Jobs report is seen as a real technical positive, eclipsing a minor downtrend and rising to new multi-day closing highs.  Additional strength looks likely in the days ahead.

 

Key Takeaways

US Equity trading range ongoing; Rally continues to be selective, but last Friday's close argues for additional upside near-term.  If this sideways pattern since mid-July has taught market participants anything, it's to expect the unexpected.  We've had at least 3-4 breakout attempts over the last couple months which have failed.  Equities along with Treasury yields, continue to be range-bound, though with a decidedly upward bias since late June.  These types of trading ranges following large upswings rarely prove to be topping patterns, and traditionally tend to follow-through in the direction of the original move.  Given a lack of counter-trend exhaustion on numerous timeframes for SPX along with Advance/Decline still within striking distance of highs, it doesn't seem like a trend reversal is all that imminent.  The dropoff in breadth since early July is not unlike what happened back in March-April after the initial spike from mid-February and isn't necessarily bearish. For now, it should pay to stay long and anticipate a move over 2200, though potentially with limited upside to 2215-2220, or 2250 maximum.

Sector-wise, the dropoff in Healthcare and Consumer Discretionary are somewhat concerning, and if Clinton's gap on the Presidency widens, this very well might continue to pressure Healthcare.  For now there's only so much that Financials and Technology can carry the market, and there is some evidence of a bit more selectivity in stocks, despite the Advance/Decline near all-time highs.  For now, this ongoing sector rotation seems to continue to bail the market out, and really no signs are there that this will change, regardless that the market has entered September.

The rotation out of Defensives looks to be nearly complete now, which was written about over the last couple weeks.  Specifically, the positive momentum divergence seen in Utilities over and in Telecomm recently is encouraging for these sectors after backing off to near key support.  Much will depend on Treasury yields NOT breaking out though to argue that these should work, and over 1.63% for example, on TNX, would be likely quite negative for both sectors.  Additionally, a move up towards 2200 and above would likely also not be led by the Defensives, so this needs to be taken into consideration.  For now, these sectors seem to be stabilizing after dropping off from June, so rallies should happen in the next 30-60 days, which would coincide well with potential negative US stock seasonality. 

The US Dollar's rip and reaction post Jobs report last Friday was telling, and despite all the weak economic data, the Dollar still finished quite strong while Treasury yields closed well up off the lows, in a rapid roller-coaster style reversal for both.  Quite a few came out to bolster the case for rates to go higher, and some of this was based purely on the stock market's resilience, i.e. "Dow Dependency" vs "Data Dependency", which can't really be ruled out these days(If the Fed has a "window" where the market has held up amidst Election uncertainty or otherwise, it very well might choose to hike, if the market comes to expect it)  Last Friday saw a huge swing in Fed Fund Futures incorporating all this data and by end of day, the chances stood at 32%, up from the low 20's.  If this continues to move to 50 on lack of a market correction ahead of the Equinox FOMC meeting, and/or various other Economic data come in strong, one can't be surprised that the Fed very well might hike, which would cause further spikes in Yields, and the US Dollar index, and be negative for Commodities, but also for these Yield centric sectors which have been stabilizing.  We'll see.



SHORT-TERM/ INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION

Short-term Thoughts (3-5 days) : Bullish- As stated above, it remains difficult to have a real bearish stance on stocks given Advance/Decline data being strong and ongoing trading ranges for SPX and others after the late June surge, while sentiment remains largely skeptical.  The latest data came in with More bears than Bulls for AAII, and while just one datapoint Sentiment-wise, it's certainly important to not exclude this in making an opinion.  Overall, as has been said here in the past, a move up to 2200 and over towards 2210-2215 remain legitimate upside targets to consider possible before any larger top appears.  Use any early week decline under 2157 to buy at 2141 with thoughts that a snapback to 2200 and above should occur.

Intermediate-term Thoughts (2-3 months): Bearish-  No change in thinking here, and despite the short-term view being inconclusive and largely still positive on move back to new highs, i still view a selloff to be a possibility in the latter half of September into October.   The combination of the divergences in indices hitting new highs the uptick in bullish sentiment along with markets entering a notoriously bearish time seasonally makes it likely that any pullback over the final five months of the year likely takes place in August-October.  While momentum and breadth remain quite positive, most of the argument for fading stocks at this time is more of a counter-trend argument, which hasn't yet materialized in the form of index weakness.  However, Most cycles along with Demark indicators highlight the possibility of a stalling out/reversal in August.  Given the fact that indices have moved higher into this period argues that the upcoming turn should be a reversal from market highs, not lows.  Additionally, another intermediate-term concern which should be mentioned is the degree of deterioration in momentum which began last year into August lows.  Even a rally back to new high territory won't allow momentum to get anywhere near where it was back in late 2014/early 2015 and this is a 12-18 month concern.  For now, for this time frame, additional intermediate-term strength still looks possible into mid-August, with key targets at 2180-5 and then 2250.

 



Attractive Technical Long Ideas per Sector:

Energy:  PXD, VLO, CXO, NFX, SLB
Industrials:  UPS, PH, TYC, MAS, GD
Technology: ATVI, FB, TTWO, GIMO, AVGO
Financials: AFL, RF, NDAQ, GS, DFS
Consumer Staples: TSN, SYY, KHC, MKC, STZ
Consumer Discretionary: BURL, CMCSA, CASY, SBUX, HD
Materials: PX, IP, AVY, MLM, APD
Healthcare: VAR, MRK, ZTS, HUM, DVA
Utilities: EIX, LNT, NEE, PNW, WEC
Telecomm: T, TMUS, VZ, S, EGHT


 

 



Relative charts of the 10 major S&P Sectors shown vs SPX in ratio form.  

 


Technology remains the most bullish sector right now technically as gains in the last few months have helped the group climb back to new highs vs SPX, and while stretched near-term, there remains little overall evidence of any real deterioration.  While the group does not show sufficient performance to rank among the top five for YTD Returns, the 3 month performance beats all other nine sectors handily, as Semiconductors have outperformed all other 23 groups that make up the S&P Level 2 GICS sectors.  While Semis have lifted to overbought levels relative to both Hardware and Software groups within Technology, any pullback in the weeks or months ahead should give the opportunity to buy dips in this sub-sector.    In the short run, some of the software stocks like ATVI, EA, TTWO, GIMO have begun to show excellent momentum and structure, and might be preferred over the Semis.  Overall, until some evidence arises of Tech beginning to slow, it's right to use dips in this sector to buy, technically speaking.
 


Financials breakout in the last couple weeks is a step in the right direction after nearly a full year of underperformance as part of a three-year pattern which has also consistently lagged.  As the chart shows above, the Financial sector managed to breakout of its downtrend vs the SPX formed last year.  The technical deterioration that resulted when the group cracked three-year support was nearly directly linked to Treasury yields, which have recently begun to show more strength.  This in turn has led to strength in this sector, which outperformed all other nine S&P GICS Level 1 groups last week, with returns of nearly 2% on the week, regardless of Friday's weak Jobs report.  Going forward, there needs to be additional strength to break back into this former range which was violated early this year, in order to have additional conviction of Financials working.  For now, the group remains near-term attractive, and any TNX move over 1.63 should help the group show continued strength, despite September being a lackluster month for stocks.

 

 

Industrials have stalled near former highs from 2014 relatively speaking in the last couple weeks, but the sector remains attractive given its strength in recouping all these losses since June 2014.   The two year relative decline has been nearly 100% recouped in the last seven months, and the act of stalling in the last few months right near all-time highs is a bullish sign which eventually should allow for this group to push back to new highs.   Transports steadying would be a step in the right direction (which has already occurred) while the act of exceeding former highs from a relative position is proper technically before expecting prolonged outperformance.  Similar to Technology, Industrials had finished near mid-range of all the major sectors in YTD performance, while their 3 month performance has shown near 5% performance, outperforming all other sectors outside of Technology, so this remains a sector to favor, until proven otherwise.

 

 

The trend in Materials leveled off a bit in the last few months, but remains the top performing sector in the past six months, higher by 14.88% since 3/2, vs SPX performance of 9.74% during that timeframe.  While many of the Metals and Mining stocks have lagged in the last couple weeks, stocks like CF, MOS, SEE, BLL, FTI have all turned over 2%, helping this sector to outperform all but one.  While the near-term trend looks choppy for now, there has been some recent evidence of this sector turning back up and this would improve if Materials were to take out the resistance highs vs S&P which has been in place since April. 

 

 

Consumer Staples has been one of the more attractive of the Defensive sectors over the last couple months, broadly outperforming Utilities and showing nearly 500 bps of outperformance over the Consumer Discretionary group, despite the broader market being up nearly 7% thus far this year.  The relative chart vs the S&P shows this group holding a level of support near former lows after its pullback from June, but has gradually been stabilizing in the last month, despite US Equities having risen sharply higher since late June.  For now, this is a group to FAVOR within the Consumer space , over Consumer Discretionary, and could be positioned long in even bigger size on evidence of any sort of weakness in US Equities which would help this group outperform even more.  For now, stocks like TSN, SYY, KHC, STZ, MKC, are all showing stellar signs of strength and should be overweighted within the group.

 

 

Consumer Discretionary has been a laggard this year, owing much to Autos and Media weakness, while groups like Consumer Durables have recently moved back to new all-time highs.  Stocks like HD, NKE, AMZN typically have huge weightings within the Discretionary sector, but even the Equal-weighted Consumer Discretionary ETF (RCD) remains trending down after peaking out last September.  Overall, one must be quite selective when buying stocks within Discretionary and stocks like HD, SBUX, CMCSA, BURL and BABA are ones to consider for the space (despite BABA not technically being a US Discretionary member)  Some evidence of Consumer Discretionary turning higher relative to SPX would give far more conviction to the market rally which for now, is getting more selective in its advance.

 

 

Utilities has shown some minor evidence of stabilizing in the last week after its huge pullback since late June which has erased about half of the groups performance since last November.  looking back, this recent underperformance has caused the group to underperform all other groups on a one-month basis with returns of -4.79% through 9/3/16 vs an S&P return of 1.06%.  Some of the reason why Utilities underperformed was due to rising rates and the perception of a Fed hike this month.  However, the other reason however had solely to do with the market showing "risk-on" tendencies which helped sectors like Technology and Financials lead the charge.  Over the last 12 months, Utilities have been the best group of any in the SPX, with returns of 20.11%.  If evidence arises that the FOMC likely does not hike this year, this group should yet again start to turn back higher, and would also outperform on any downturn.  At present, there is some technical evidence of this showing positive divergence when looking at momentum indicators like RSI which have made higher lows since its recent bottom in mid-August.  For now though, insufficient strength is there to consider a full overweight, but merely some evidence of any upcoming bounce.  Utilities should be watched carefully for signs this starts to trend back higher, which would give a possible warning sign of flows back to defensive sectors.

 

Energy remains a technical laggard after peaking out three months ago in early June.  The relative chart of OIH vs SPX shows the breakdown which violated this entire uptrend attempt from early January lows.  Its bounce attempt into mid-August failed to regain the prior area of the trend violation, and has since pulled back to within striking distance of lows made five weeks ago when Crude briefly broke beneath $40.  While any decision to cap output by Saudi Arabia and Russia might result in a snapback rally, for now, Energy is not attractive technically and appears to merit further near-term selling before any low is at hand.  Given that OIH's relative attractiveness seems to mirror WTI strength, we'd need to get back above $49.36 to have optimism that Energy could rally.

 

Healthcare's attractiveness also took a turn for the worse in the last month after peaking out in early August and breaking a four-month uptrend which had been in place for the group.  As the relative chart of XLV vs SPX shows above, Healthcare as a group peaked out back in mid-2015 and has formed two separate lower highs since that time.  While it's right to look at buying dips from an absolute basis near $71 in XLV given the ongoing uptrend in place, we'd need to see some evidence of relative charts turning back higher to have confidence on a relative basis.   Four straight "down" weeks for the Healthcare group amidst a growing chorus of Drug Price escalation fury" has cast some real negative sentiment on the group of late.  Signs of Clinton gaining further ground on Trump in the weeks ahead would likely prohibit this group from making too large of a bounce, given her focus on reigning in Drug prices.  (Her speech last month coincided with the huge setback which was seen in many of the Biotech stocks.)

 

 

Telecom looks apt to bounce in the months ahead given its sharp pullback to near initial support over the last two months.  Similar to Utilities, this defensive group began to suffer as rumors of a possible Rate hike helped Fed Fund futures price in a much higher likelihood for September rate hikes.  In the last week we've seen some partial evidence of Telecom stabilizing, and Sector ETF's like IYZ for Telecom have held near $31.50 on the drawdown from July which coincidentally marks the former highs from September 2015 into April 2015 when this group began to stall out.  (Former resistance now becoming support on declines) Snapback rallies from $32.36 back to $34 or higher look likely for Telecom, which should help this group outperform the broader market during September/October.

 

 

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report: HAS, INTU, AMT, and LRCX.  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.

 

Trend bullish, but SPX faces resistance entering June

May 31, 2016

S&P JUNE FUTURES (SPM6)
Contact: info@newtonadvisor.com

2039-40, 2029-30, 2022-4, 2007-9        Support
2105-6, 2112-4, 2025-6                             Resistance

 

Key Takeaways:

1) S&P trend changed to bullish on last week's move above trendline resistance at 2065 which carried prices quickly up to test mid-April highs. However, upside now looks limited given overbought conditions combined with short-term cycles and former highs being technically important.

2) US Dollar index poised for its biggest monthly rise since September 2014 with returns through 5/30/16 of 3.6%.  Precious metals have been hard hit in the last two weeks given this rally.

3) Emerging markets, conversely, have been hard hit in May, with MSCI Emerging mkts index falling nearly 4%, the most since January, while Brazil's Bovespa dropped nearly 9% on the month. 

4) Treasury yields seem to be readying for an upside breakout, which could allow the long end to join the recent gains in 2 year yields.  Given the Fed's determination at readying the market for a rate increase, the bond market seems to be paying attention on the front end, while 10 and 30-year yields, similar to stocks are up near key short-term resistance.

5)  Technology, Financials and Healthcare dominated performance for May, with the SPX's 1.4% gains for the month with one day remaining being led by the three sectors that account for 50% of capitalization

6) Sentiment has begun to show some evidence of following the most recent rally, as Equity put/call data dove from readings shown earlier in the week.  By end of week, the Equity Put/call had fallen to levels not seen since last August.

7) Breadth continues to be supportive of a move back to new high territory, while climbing back to April highs might allowfor a bit of resistance to take hold as the indices enter June.  However, the beginning of the month tends to be far better seasonally speaking than back end-end of quarter, which often shows end-of-quarter positioning.


S&P 500

Short-term Thoughts (3-5 days) : Trend bullish but has reached former April highs which looks to be a logical place to pick a spot to fight this trend, for those who intend to do so.   A stalling out is possible between 6/1-6/4 based on the combination of short-term cycles, former highs acting as resistance, along with overbought conditions in the near-term.   However, this rally looks to move back to new high territory in the weeks ahead, so its smart not to get too aggressive in hedging, or trying to short into this move, as the pullback could prove minor before moving back to new high territory. 


Intermediate-term Thoughts (2-3 months): Bullish-    A move back to new high territory is expected before indices turn down to begin any larger correction.  The uptick in bearish sentiment given that indices are within 3.7% of all-time highs looks to be an important factor arguing that further selloffs could prove muted for the time being.  From a fundamental and macro standpoint, factors like ongoing revenue concerns, FOMC uncertainty, China & Emerging market growth, along with Election year angst have all served to fuel bearish sentiment steadily.  Meanwhile technically, despite the short term churning, there remains precious little to be all that concerned about given the medium-term picture.  The A/D-Advance/Decline for the NYSEhas recently moved back to new all-time high territory while weekly momentum remains bullish.   The 5-day Put/call ratio meanwhile has hit the highest levels since mid-February while AAII polls show a greater number of Bears than Bulls for the second straight week.  In addition, the total Put/call ratio has hit the highest level in over three months.  Sector-wise, the start of Technology outperformance in the last week could be telling, as the NASDAQ has begun to act a bit better after a lackluster few months.  While this six-month period remains seasonally weak and daily and monthly MACD are negative, gains should be able to hold indices up into late August before any pullback into the end of Q3. 


Technical review and What to expect

The last week brought forth some fairly significant technical developments, as the S&P managed to breakout of the minor downtrend from mid-April and accelerate all the way up to test these levels by end of week.  As of 5/30, the electronic session in Monday's holiday session saw S&P futures close within a point of all-time high territory, 2101 vs last May 21-2103, while still under the intra-day 2105 which was recorded both last May and this past April.(and still 1.4% below SPX cash peak closing prices just above 2130) While near-term momentum has gotten stretched on this recent 3% spike in prices in the last 10 days, the weekly structure suggests this was quite the bullish move, not only canceling out the thoughts of a possible Head and Shoulders pattern at play, but also improvingthe technical structure on an immediate move back up to levels that were hit around the middle part of April.  The trend is bullish short-term, and closing in quickly on key overhead levels, which should be a source of resistance entering the month of June.  However, if all-time highs are exceeded in the SPX, NASDAQ and DJIA, this should provide the impetus for a quick move to SPX 2250 into the summer, allowing price to join the recent breadth improvement and move back to all-time highs seen by the Advance/Decline for all securities.

For now, bonds haven't really shown signs of selling off too substantially on the long end just yet, which would be thought to be the case if the FOMC suspects the US economy is strong enough to hike in June or July.  2 Year yield attempted to breakout, while 10 and 30 remain more subdued, but do lie near key areas where breakouts might happen in the next couple weeks and have to be watched carefully here in this regard.  Meanwhile the US Dollar index should be closing in on its first major area of resistance near 96, which might cause a temporary stalling out in the US Dollar and allow for short-term bounces in both the Euro and Gold.  

Overall I suspect this week could provide a short-term stalling out in stocks, but am skeptical that equities show any sort of meaningful selloff other than a 2-3% drawdown at a maximum before moving back to new high territory.  And despite any near-term slowdown, it remains right to be long in selective stocks within Technology, Financials and Healthcare, as these sectors provide about 50% of the total SPX composition and should outperform in the next couple months.

This week's Weekly Technical Perspective covers 10 stocks within the major 10 sectors that are all poised for potential further gains in the weeks ahead.  Each of these has bullish technical structure and has recently moved to new 52-week highs, or is on the verge. Charts and comments below.

 


Charts & Writeups- 10 Bullish stocks to consider technically among 10 different S&P Sectors
 

Technology-  Intuit (INTU-$107.89)-   INTU looks technically attractive, and its ability to have rebounded back to test the highs of its ascending triangle formation from last May should result in an upcoming breakout to new high territory.   Given the stock has moved in a linear uptrend since the latter part of 2008, this triangle formation since 2015 represents a change in structure.  However, ascending triangle patterns of this sort tend to be bullish continuation patterns, and should lead to an upcoming breakout given historical precedent in how these patterns are typically resolved.  Movement back up above $109 should lead straight to $120 and any pullback in the days and weeks ahead to near $105-$106.50 should constitute a technical buying opportunity.


 

Financials- PrivateBancorp (PVTB- $44.54) PVTB's strength in climbing back above $44 puts this stock in a strong technical position as it's setting up for an upcoming test of last year's highs near $45.79, made in November.  However, the larger pattern remains quite constructive, and little resistance lies between current levels and the area near $50 which has hit initially back in 2008.

 

Energy - Concho Resources inc (CXO- $122.19) CXO's rally back above $110 serves as a breakout of the two-year downtrend in place for this stock, and allowed for acceleration up to over $120 in a short period of time.  Given that Crude's rally is ongoing and to this point has shown little signs of peaking out, the Energy sector remains one to favor technically.  CXO's outperformance this year speaks for itself after having risen 31+% this year through 5/27/16, but given this move back over the descending trendline, it looks to have further to go, technically speaking.  Initial targets lie near last May's highs at $134, with movement over allowing for a move back up over $140.

 

Industrials -  Acuity Brands (AYI- $256.21)  AYI is bullish technically and the breakout into mid-April looks to have consolidated sufficiently and now could give way to a move back to new high territory in the weeks ahead. While the selloff into February of this year caused some minor trend damage, this was recuperated nearly right away and the larger trend for AYI remains in parabolic mode since early 2009 with an accelerating trend of higher highs and higher lows at an increasing rate.  Key for short-term traders will be a move back over $259 which should drive this up to $280 which is an attractive area to sell for trading purposes.  For intermediate-term investors, a move back down under $239 is necessary to think this rally might be postponed.

 

Healthcare -  WebMD Health (WBMD- $65.32)  The recent breakout of the enormous nine-year double bottom pattern has meaningful bullish intermediate-term implications for WBMD and should help the pattern continue to stretch higher, despite a near 75% gain in prices just since last September alone.  Monthly RSI has hit 75, which might seem troublesome for the months ahead, but the move over two prior highs from 2011 and 2007 should help WBMD hit $70 before any stalling with a good likelihood of $80 potentially being reached as an intermediate-term technical target.  In the short run, any pullback to the low $60s all the way down to $58 would be an excellent area to consider buying dips.  But the intermediate-term progress in exceeding two prior highs made more than five years ago is considered a reason for optimism overall with WBMD.

 

Materials- Vulcan Materials (VMC-$118.12)-  VMC remains in acceleration mode as it completes the right side of its giant "Rounding Bottom" pattern with upside targets at $128, or nearly 8% above.  Given that this level held the initial time back in 2007, it should serve as a magnet for prices but also likely cause a real stalling out in the shares on the first retest.  Overall, pullbacks to $110-$115 would likely constitute an attractive opportunity to buy dips with upside targets near these former highs in 2007.  For now, VMC remains one of the more attractive within the space, and has shown very little signs of any weakness, with even its February 2016 pullback proving minimal and leading to move back to monthly highs within the next few weeks.

 

Telecom -  Verizon (VZ- $50.62)  VZ's pattern improved substantially given the rally back to test 2013 highs early this year.  The subsequent pullback failed to do much technical damage and has now provided an opportunity to buy dips with key upside resistance near $55.  Overall, this pattern in VZ between 1999 and 2013 resembles a giant base for this stock with subsequent three years representing a higher base which should give way to an eventual rally back to test 1999 highs.   Verizon also has taken some positive steps of late relative to AT&T, and could be in the process of bottoming out in relative terms and starting to relatively outperform.  Overall, given the amount of strength early this year followed by the recent consolidation, VZ remains attractive to own, with movement back over $55 leading to the real acceleration that will allow this to eventually retest $63.

 

Consumer Staples - Molson Coors Brewing (TAP-$100.20)  TAP's move back to new monthly highs in exceeding former levels set back last November/December when equities peaked last year should set the stage for additional strength up to near $110 before any meaningful peak.   The initial advance late last year managed to exceed nearly six months of sideways consolidation and TAP has continued to show very good signs of technical structure, with an ongoing pattern of higher highs and higher lows which makes this stock one of the better within its peer group to own. 

 

Consumer Discretionary - Hasbro (HAS-$87.28)  HAS looks attractive technically given the stock's ability to rise back over highs set this past Fall and now the recent stalling out is showing signs of being resolved by movement back to highs given last Friday's advance.   Upside targets lie near $90 and then $100, which should be meaningful to HAS given its prior rise.  Momentum-wise, the stock's pullback last Fall helped to alleviate some overbought conditions, and its recent move back to new highs looks to have been consolidated in good fashion which should allow for rallies back above $90.  Overall, HAS is attractive, and long positions are warranted at current levels, looking to buy dips.

 

Utilities -  P G $ E (PCG- $59.12) PCG is attractive within the Utilities space given that the stock has not yet moved back to new highs, and rests near former highs from last Spring, which provided resistance on the initial test earller this year.  Getting back above $60 looks likely in the weeks ahead and should provide a springboard for PCG to rise to at least $70 on an intermediate-term basis.  Giventhat stock completely retraced the weakness into last Fall, a move back up above $60 on a weekly basis should result in real upside acceleration.

 

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report:  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.

Major Sector Review- 04/19/16

April 19, 2016

S&P JUNE FUTURES (SPM6)
Contact: info@newtonadvisor.com

2058-60, 2026-7, 2000-1, 1982-3       Support
2083-4, 2100-2105, 2130-3   Resistance

In This Issue

Sector view: Healthcare, Materials breaking out, following recent Financials move

Shift out of Defensive sectors adds credibility to the rally

SPX resilient at a time when most expected to fall

Technical Sector Summary: 4-6 Week timeframe is basis for grouping-  Calls are made based on thoughts of the groups going forward between now and the end of 2Q, vs how much the sectors have trended up in the past.

Bullish

Healthcare- Short-term bullish- Intermediate-term bullish- Healthcare is just starting to emerge again after breaking out 4/18 from its downtrend from last summer (XLV) and showing evidence that its relative chart has also broken out vs the broader market and now turning back to the upside- XLV should rally up to challenge 72.90 from its current 70.67-  Most attractive Trend Following: UNH, JNJ, BCR, BDX, SYK, WAT.  Most attractive risk/rewards: MDT, BSX, GILD, CELG, ALXN, REGN, XRAY--Consider XLV, VHT, IYH, IHI, IHF, XBI, DRG

Financials- Short-term bullish, Intermediate-term Neutral- The recent breakout in XLF vs SPX has helped this sector to rebound at the right time and provide the market with some much needed participation, with above-average gains in banks, broker dealer stocks, insurance and the REITS.  Short-term momentum has turned positive on XLF, while relative charts of XLF vs SPX have broken out above former lows and mild downtrends that make this sector one to overweight for the weeks ahead.  Unfortunately, given the long-term Neutral pattern present in this group, only near-term strength can be recommended at this time.  If and when this sector begins to show signs of a larger breakout, this would add to the bullishness of this group on a long-term timeframe.  Most attractive trend following names:  Most attractive Technical risk/rewards : GS, SLM, BLK, V, MA, JPM, ETFC, AMTD, NDAQ, ICE

Materials- Short-term bullish Interestingly enough, one of this year's best performing sectors Year to Date is also one of the laggards on a six-month basis which incorporates the last two months of 2015.  This sector has been steadily improving given the weakness in the US Dollar which has helped the Mining sector along with Chemicals.  XLB has just broken out above highs seen back in March, along with last November/December, which puts this at the highest levels since last July.  Given the ongoing pullback in USD, further strength looks likely for Materials in Q2.  Most attractive risk/reward names: WM, FAST, DOW, AA, NEM, IFF, IP, VMC.

Energy- Short-term bullish, Intermediate-term bearish, and additional progress is necessary before thinking this sector can simply continue higher without facing real challenges.  For now, a bullish call is based on the period between now and late May, where Energy still looks to outperform.  However, technically, gains into the next month would call for profit-taking in most stocks and extreme selectivity given the run that this sector has enjoyed over the last couple months.- Gains likely up to challenge last year's 70.78 highs from its current 64.59.  Given that Crude has survived the Doha scare with no real technical damage given complete inaction on the part of OPEC but thoughts turning to June, this sector could show real outperformance inn the next couple months before any peakout, seasonally speaking.  XLE has just exceeded trendline resistance from last year, and has just surpassed its 200-day moving average for the first time in the last three attempts since last Spring.  Momentum indicatorslike MACD are positively sloped and trending higher-  Most attractive Trend following:  HES, APA, NFX, XOM, CVX

TechnologyShort-term, intermediate-term Bullish-  Minor slowing of late near former highs should present good opportunity to buy for 1-2 months of outperformance before any Summer slowdown begins.  XLK has been consolidating right near former highs but slightly above, while relative charts vs SPX haven't declined substantially enough to expect a meaningful slowdown.  This minor relative weakness in the last few weeks appears to be down near key trendlines which should result in this sector beginning to lift back higher.  Most attractive risk/reward names: ADBE, AVGO, TXN, SGMS, NXPI, NVDA, GOOGL, MSFT, A, TXN


Neutral

Consumer DiscretionaryShort-term bullish on absolute basis, while relative charts vs SPX are more neutral.  Given Monday's breakout above late March highs, XLY likely finds strong resistance near 81.23, former highs, which lie just above current levels, while relative charts have been flat and range-bound for the last few months.   While it's tough to argue the strength in this sector since mid-February, the risk/reward doesn't look as appealing in the short run, particularly given the relative churning in the relative line given that price lies $1 from former highs while momentum has waned a bit in the last month.  Most attractive risk/reward names : NKE, SBUX, ORLY, UA, DG, MCD, HD

Industrials- Upside might prove limited near-term given price being right under former highs- Similar to Discretionary, noone can argue the near-term strength or outperformance, but XLI lies right near former highs within .75c and relative charts have flattened a bit given the churning in the last month.  The ability to breakout back to new all-time highs would encourage following this sector and overweighting yet again, but given the move its had, it's important to be a bit more selective given that prices remain within striking distance of highs from early last year.  Most attractive risk/reward names: RTN, COL, ROK, MMM,  TEX, BLL, LMT, MMM, DOV, MLM, FISV, ADP, TDG


Bearish

Utilities-  Stretched and additional mean reversion, pullbacks likely for Utilities after move to new alltime highsOutsized outperformance this year now starting to wane as indices near highs and Yields beginning to stabilize- Expect underperformance between now and June as indices breakout to new high territory and yields move North.  Most attractive for a risk/reward basis: NI, WEC, PPL, PNM

Consumer Staples- Near-term underperformance likely-  This sector has gotten stretched, while the relative strength has slowly begun to turn down over the last month as evidence of Sector rotation took hold and flows out of Defensive sectors started to occur.  Most attractive for a risk/reward basis include: CPB, RAI, CAG, CLX, KO, PM, WMT, DG, and TAP.

 



Sector Thoughts- Charts and additional analysis of the major SPDR Sector ETFs

 

Healthcare- (XLV)- Healthcare is just starting to emerge again after breaking out 4/18 from its downtrend from last summer (XLV) and showing evidence that its relative chart has also broken out vs the broader market and now turning back to the upside- XLV should rally up to challenge 72.90 from its current 70.67.  Overall, this sector appears to be just turning back higher after a lengthy six month period of consolidation, and appears like a much better risk/reward than most stocks within Industrials, Cons. Discretionary, or the Financial sector, mostly based on its short-term correction within the larger bullish base.

 

Energy-(XLE)-Energy looks to be just starting to make more meaningful progress that could allow for additional gains ahead of the next big meeting in Doha in June.  For now, a bullish call is short-term in nature only, where gains into the next month would call for profit-taking in most stocks and extreme selectivity given the run that this sector has enjoyed over the last couple months.- Gains likely up to challenge last year's 70.78 highs from its current 64.59.  Given that Crude has survived the Doha scare with no real technical damage given complete inaction on the part of OPEC but thoughts turning to June, this sector could show real outperformance inn the next couple months before any peakout, seasonally speaking.  XLE has just exceeded trendline resistance from last year, and has just surpassed its 200-day moving average for the first time in the last three attempts since last Spring.  Momentum indicatorslike MACD are positively sloped and trending higher Yet the larger pattern continues to suggest caution on an intermediate-term timeframe, so for now, near-term strength is likely and we'll see the extent of the outperformance and be on the lookout for signs of stalling out in May/June.
 

Financials -(XLF)- The recent breakout in XLF vs SPX has helped this sector to rebound at the right time and provide the market with some much needed participation, with above-average gains in banks, broker dealer stocks, insurance and the REITS.  Short-term momentum has turned positive on XLF, while relative charts of XLF vs SPX have broken out above former lows and mild downtrends that make this sector one to overweight for the weeks ahead.  Unfortunately, given the long-term Neutral pattern present in this group, only near-term strength can be recommended at this time.  If and when this sector begins to show signs of a larger breakout, this would add to the bullishness of this group on a long-term timeframe
 

Materials- (XLB)- Interestingly enough, one of this year's best performing sectors Year to Date is also one of the laggards on a six-month basis which incorporates the last two months of 2015.  This sector has been steadily improving given the weakness in the US Dollar which has helped the Mining sector along with Chemicals.  XLB has just broken out above highs seen back in March, along with last November/December, which puts this at the highest levels since last July.  Given the ongoing pullback in USD, further strength looks likely for Materials in Q2.
 

Technology (XLK)- Minor slowing of late near former highs should present good opportunity to buy for 1-2 months of outperformance before any Summer slowdown begins.  XLK has been consolidating right near former highs but slightly above, while relative charts vs SPX haven't declined substantially enough to expect a meaningful slowdown.  This minor relative weakness in the last few weeks appears to be down near key trendlines which should result in this sector beginning to lift back higher.  Most attractive

Industrials (XLI)- Upside might prove limited near-term given price being right under former highs- Similar to Discretionary, noone can argue the near-term strength or outperformance, but XLI lies right near former highs within .75c and relative charts have flattened a bit given the churning in the last month.  The ability to breakout back to new all-time highs would encourage following this sector and overweighting yet again, but given the move its had, it's important to be a bit more selective given that prices remain within striking distance of highs from early last year.

Consumer Discretionary (XLY)- Short-term bullish on absolute basis, while relative charts vs SPX are more neutral.  Given Monday's breakout above late March highs, XLY likely finds strong resistance near 81.23, former highs, which lie just above current levels, while relative charts have been flat and range-bound for the last few months.   While it's tough to argue the strength in this sector since mid-February, the risk/reward doesn't look as appealing in the short run, particularly given the relative churning in the relative line given that price lies $1 from former highs while momentum has waned a bit in the last month.

Utilities (XLU)- Stretched and additional mean reversion, pullbacks likely for Utilities in the short-run. Intermediate-term bullishOutsized outperformance this year now starting to wane as indices near highs and Yields beginning to stabilize- Expect underperformance between now and June as indices breakout to new high territory and yields move North.  While the broader technical pattern on Utilities remains in very good shape, momentum has gotten stretched and we've seen some evidence of near-term underperformance which could very well last another 1-2 months in this group as Treasury yields attempt to rally a bit more into June.  For now, this group is near-term unattractive, but intermediate-term bullish given the structural progress.

 

Consumer Staples (XLP)  Near-term underperformance likely-  This sector has gotten stretched, while the relative strength has slowly begun to turn down over the last month as evidence of Sector rotation took hold and flows out of Defensive sectors started to occur.  Most attractive for a risk/reward basis include: CPB, RAI, CAG, CLX, KO, PM, WMT, and TAP.

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