After a brief reversal Monday, the S&P rallied strongly midweek to fresh recovery highs and held its ground thereafter to end the week with a 1.6% gain.
The reservations many commentators have had over this rally are slowly and steadily disappearing as ever higher levels are achieved. Whether it’s some other index or group of stocks not confirming, lack of volume, or leadership and breadth being too thin (the NYSE advance/decline is now at all time highs), one by one this advance is overcoming them all.
The final line in the sand is of course the all time highs of nearly a year ago which are now just 2.4% away. We’ve been here before however. It’s easy to forget that in December we came within 1% of all time highs and had many high-profile names staging impressive breakouts, including all four FANG stocks, before the January decline took hold in a vicious move. Fortunately we don’t need to wait for all time highs to participate again, instead we’ve been taking new entry signals for individual stocks since they first started triggering in February and March. Whether this move ends with another brutal reversal to new lows, or continues to new highs (or even something completely different), only time will tell.
This week the notable feature for me was the Russell 2000 ($RUT) which finished above its 40-week MA for the first time since last July, joining the other major indices (Dow, S&P, NASDAQ, Transports, Midcap) and leaving only the Microcap Index yet to do so. It’s also started to show strength on a relative basis, as seen on the second chart comparing it to the S&P.
The sector rankings this week reflect the shift that’s taking place. I have Technology ($XLK) and Industrials ($XLI) as the leading pair, with the more defensive Staples ($XLP) and Utilities ($XLU) slipping to third and fourth place.
Then comes Materials ($XLB) and Consumer Discretionary ($XLY) which continue to improve strongly:-
They’re followed by Energy ($XLE), Healthcare ($XLV), and Financials, which are all toying with their 200-day MA.
What should be apparent here is that even the worst sectors on a relative basis are still in the midst of a strong recovery, and it’s the more defensive former leaders of staples and utilities that are now starting to wane. Breadth is improving, the NYSE A/D is at all time highs, and the major indices are just shy of all time highs. You’d need to have one hell of an entrenched subjective view to still be on the sidelines painting this action as negative.
Away from the Sector SPDRs it’s worth reiterating gold miners continue to act well in contrast to other supposed defensive sectors. While Gold ($GLD) retreated to its 50-day, the Gold Miners ($GDX) rallied to fresh highs.
Alpha Capture Portfolio
Our portfolio gained 0.5% this week vs 1.6% for the S&P, and is now -3.5% YTD. We continue to take new entry signals as they present themselves, with a further three signals this week, and we have an additional signal this weekend which brings us up to 14 open positions with 10% remaining in cash.
As discussed earlier, utilities, consumer goods and staples are on the wane, and we’re seeing more strength in industrials, technology, energy, and specific areas within healthcare like medical equipment.
Here’s a sample from the full list of 25 names:-