From the desk of Steve Strazza @Sstrazza
For the week ended Friday, June 19, 2020:
Every week we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Despite some volatility in the second half, risk assets continued their steady march higher last week. The broadening participation from Equities was again evident as every major US and Global Index was higher with the exception of Dow Utilities $DJU.
We've written extensively about the strongest areas and those first to reclaim their highs. In this post, we'll highlight a handful of Equity ETFs/Indexes which are at or just beneath fresh highs. Whether these areas work through their overhead supply or get rejected at these key levels will provide important information into the strength and durability of the current rally.
Let's dive right in and take a look at our Sector SPDR ETF table.
Click table to enlarge view.
Technology $XLK continues to be the clear standout among sectors, illustrated by its 30% return over the trailing year. XLK made a new all-time high earlier this month but has been unable to make a sustained breakout yet.
Considering the new highs already achieved by Tech's key subsectors including Cloud $SKYY, Software $IGV, Social Media $SOCL, Internet, and Semiconductors $SOXX (see Industry table), we're likely to see a sustained move higher from Technology at the sector level as well. But what about the rest?
Coming into the year, the strongest sectors aside from Technology were Discretionary $XLY, Health Care $XLV, and Communications $XLC. This long-term outperformance can be seen in their trailing 12-month returns.
As you can see, all of these sectors are also within striking distance of new all-time highs. If these continuation patterns resolve higher, it will be a major development for bulls.
Last week, we pointed out how some of these sectors appeared to be hooking back up towards the leading quadrant of the daily Relative Rotation Graph. Technology has since done so and Communications and Discretionary are very close as well.
As for our Industry ETF table, if Medical Devices $IHI could follow Biotechs $IBB to new all-time highs, it could give the Health Care sector the needed juice to do the same.
Similar to the Tech subsector ETFs that we always talk about, Medical Devices were a former leader heading into the Q1 selloff. We want to see this group reassert itself and make new highs.
Home Construction $ITB, on the other hand, is one of the more crucially important cyclical subsectors and usually provides a good read on the consumer economy. New highs for the "homies" would be a serious feather in the hat for bulls.
Similar to the sectors discussed above, these industry groups are right back at their former highs. We're watching closely to see how prices react to these logical areas of overhead supply.
Be sure to check out our deep dive on Biotech. We like this space even more now that price just broke out decisively from a multi-year base.
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