Hello everyone,
No doubt, this has been a tricky market - in all assets and sectors. Avoiding laggards and downtrends was the easy part. It’s the failed breakouts and fast rotations that’s been the challenge.
While our job is to keep following breakouts in the leaders (and I’ll show one niche sector that looks good), I also wanted to step back and assess whether the broad stock indices could have made a meaningful low.
Mega supports for equities
Last week, we looked at how IWM and XDV hit major support levels. Well, so too did the US home construction index:
There was a bad reaction to JP Morgan’s earnings this week, but the next day, JPM had a strong rally. Maybe the fact that JPM hit major support had something to do with it. 😉
Mega-cap tech also hit major supports. Here’s AAPL and AMZN monthly.
There’s countless other examples that I won’t go into.
A niche tech sector
I’ve been discussing the strength biotech for the past month. But another, more niche sector that’s looking interesting is the Internet of Things (IoT).
What is IoT? Simply put, it means connecting everything to the internet. IoT lets you:
Control your home’s locks, lights, heat, and appliances from anywhere (“smart homes”)
Find the nearest available parking spot (“smart cities”)
Find construction materials in a laydown yard
Monitor structural health of high-rises & bridges in real-time
This is an area that I’ve spent most of my engineering career on. The entrepreneurs & management that I know at several industrial IoT companies are always telling me about their high customer demand and rapid growth.
Let’s focus on what matters the most: price action.
SWIR Weekly shows a big breakout, while DGII Weekly has a nice long setup forming.
ROK Monthly. Rockwell is the world’s largest company dedicated to industrial automation. It’s another stock that recently hit major support.
Commodities
Relative to GDX, the S&P 500 (SPX) is looking very bullish with this 7yr base inside an uptrend. Resistance has been hit 3 times already – the more tests, the more likely we break out to the upside.
PSCE Weekly. Small-cap energy broke support this week. Looks like energy stocks might have some more downside here.
Materials (XLB, SLX, COPX) are hovering near 52-week lows.
Food for thought
We can see a decent rally for stocks given that they recently hit major support, inflation is backing off, and sentiment is in the dumps.
But that’s not to say we’re off to the moon. I posted this SPX monthly chart recently on twitter:
Imagine that, for the next several years, we’re in a choppy range between the June lows and Jan highs. Some coiling action would give the market some nice rest and recharge for the next major leg higher.
And while the broad index chops sideways, there could be some sectors in uptrends and some in downtrends over that period. We’ll follow those leaders, whatever they may be.
That’s all for this week! If you found this post useful, please give it a like and share. Thanks for reading.
Twitter: @alphacharts.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.