From the desk of Steve Strazza @Sstrazza
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the relative strength trends at play and preview some of the things we're watching in order to profit in the weeks and months ahead.
Last week, we followed up on some of the charts we recently cautioned were approaching overhead supply to see how they reacted to these critical levels.
Since we experienced a bit of a selloff on Thursday and Friday, this week we’re going to keep it simple and take a high-level look at some of the most important assets in the world and assess any damage that was endured...
...Spoiler alert: there wasn't much.
Where better to start than with US Equity Markets.
Click table to enlarge view.
The S&P 500 $SPY and Nasdaq $QQQ were down over 2% and 3%, respectively. While it appears like an orderly retest of support for the S&P 500, the action in the Nasdaq was more severe as it ended the week with its largest two-day decline (-6.5%) since the panic selling in March.
Here's the chart.
We're focused on our most recent price objective of 282 right now. Price undercut it by more than 10 points Friday just to rally back and close the week at about 283.50. You can visualize this strong intraday push from buyers via the long lower wick (circled).
Here's a look at the S&P pulling back to a very logical level of support at its February highs.
After recovering from a 35% drawdown and resolving higher from a 6-month base, a little digestion and retest of the breakout level is healthy. What wouldn't be so healthy is if this turned into a failed move and prices became trapped back beneath their former highs.
This is now the line in the sand for US Equities.
We'll be watching closely this week to see if buyers successfully defend this critical level just beneath 340. If we're below it, expect some chop and sideways action for stocks in the near-term.
As for our Industry Group table, there was a lot of red this week.
The main takeaway here is that the week's top performers like Banks $KBE and Aerospace $ITA are in primary downtrends while the week's biggest losers such as Home Construction $ITB, Software $FDN, and Internet $FDN are in primary uptrends. One week can only change so much...
We're seeing the same "trash trade" characteristics when we look at our Factor ETF table.
Areas such as Growth $IWF and High Quality $SPHQ which are in primary uptrends and we continue to like on the long side, got hit the hardest this week. Meanwhile, the decade-long underperformer of the group, Value $IWD performed relatively well.
Let's see how the Large-Cap Sectors fared now.
In last week's note, we warned that Tech was running into potential resistance at our price objective of 124. Prices corrected at that level this week as $XLK was the second worst-performer on our Sector ETF list. As Tech bulls, we're just fine with that as this is a logical level for the group to do some consolidating.
How about some of the other sectors? How did areas like Staples $XLP hold up?
Pretty damn well. Price is simply retesting its all-time highs near 65 from earlier in the year. Above there and the bias is higher.
How about a recent leader like Materials $XLB... how much did it give back this week?
Not enough to violate its former all-time highs around 64. Again, as long as we're above that level - I think you can even give it room back to ~61-62, the bias is higher.
The theme here seems to be clear and simple: There was very little damage done to US Equities last week. Our outlook remains the same... we want to be buying strong stocks, especially on weakness like this.
Even the worst-performing sectors have not been able to violate support. This week we wrote about our bearish view on Energy $XLE, which is the one area we're looking to as a potential short... but even despite getting hit hardest by this week's selloff, price remains ever so slightly above our risk-level. Here's a look.
We're eyeing that July pivot low at 34.25. For more on Energy and Crude Oil, check out our recent post.
