We've been extremely vocal about the Medical Devices space on the blog, and rightfully so, with the sector continuing its long-term trend of out-performance throughout 2018. The index has 57 components, but because the top 10 stocks make up roughly 60% of the index, opportunities in the smaller components tend to be overlooked by many market participants. In this post I want to look at all of its components and highlight names where our risk is well-defined and the reward/risk is still skewed in our favor.
Let's start off with the sector ETF $IHI on an absolute basis for context. Prices are just off all-time highs after successfully retesting their breakout area near 203.50. As long as prices are above that level, short and intermediate-term momentum remains intact and our next upside objective is up near 248-249.50.
I could not be more thrilled that it's the end of the month for one reason alone: Monthly Candlestick Charts. They get me every time! It's easy to get lost in the every day noise surrounding the market. The chart review I do heading into the first of every month is one of the most important parts of my process. It brings me home. There's no better way I know to maintain composure and recognize trends than this monthly music and chart session!
Since June of 2017 when the S&P500 broke out above 2400, we've had a target of 3000. After close to a 4% rally in the S&P500 Index this month, we went out just 6 points from a new all-time high monthly close. This is not any evidence we think suggests anything has changed. To the contrary, higher prices are things we expect to see in an uptrend:
The original inspiration for the monthly conference calls for members of All Star Charts came from the benefits of the Question & Answer sessions. We have really smart and experienced members and I think everyone can get value from this process, myself included.
Over the years, our conference calls have gotten much more in depth and to keep the videos under an hour, we simply have not had as much time for Q&A as was originally intended. Therefore, starting this month I will be hosting a video Q&A which will be archived for everyone to watch.
If you have any questions, you can fill out this form and I will be answering them in a video on the evening of August 1, 2018.
Please note that this form is not a pop-out window or link, just enter your name and question directly below in the spaces provided.
This post is part two of the semiconductor discussion that began here, with us outlining the current trend in Semiconductors from the top-down. If you've not read that yet, I suggest you do as this post will focus on the specific stocks we want to be involved in to capitalize on the eventual continuation of this sector's uptrend.
Market Breadth has been a hot topic as of late, which is why we've talked about it here, here, here, and here over the last month. Last week we discussed market breadth from a global perspective by measuring the trends and momentum readings of stock markets from all around the world, as well as the US sectors and sub-sectors. Today we're going to expand on that by looking at the internals specific to the US stock market. I will warn you in advance that this is a bit of a long post, but I don't want to give the bears a chance to say that we're relying too heavily on one or two charts to support our conclusion.
The Nasdaq 100 just hit another all-time high, as did the amount of people quoting the percentage of the index's gains that are from its top five components. While that makes for a good headline and soundbite, it's not really all that actionable. What is actionable is the chart below, which we spoke about in early June.
In 2018 the trend of small-cap Healthcare out-performance over its large-cap counterparts accelerated aggressively, with the small-cap ETF $PSCH returning 30.50% YTD and the large-cap ETF $XLV up a meager 1.70%.
Click on chart to enlarge view.
Despite XLV's under-performance relative to small-caps and the broader market, some signs of improvement have been developing over the last few weeks. As we can see in the ratio of $XLV / $SPY below, prices retested their 2017 lows as momentum diverged positively. This suggests at the very least we don't want to be short on a relative basis.
This is Part 2 of the 3rd Quarter Playbook for Members of Allstarcharts.com and focuses more on the Global Macro and Intermarket composition of the current environment. For more US Sector and Stock specific analysis, see Part 1.
Throughout April and May we've discussed market breadth improvements that have us bullish on equity prices both in the US and globally. Today I want to perform a simple exercise to see how the data we're looking at has developed over the last two months or so of trading.
One important part of the bull case for stocks in the US has been the leadership we've seen from small and mid-caps, growth areas of the market, and high beta stocks, however, we're starting to see some short-term deterioration in these leaders on an absolute and relative basis. Today I want to quickly look at the relationship between high beta stocks and their low volatility counterparts.