A short-term bounce looks to be underway in US Equities that likely carries prices higher into 9/14 and should reach at least 4125-4150. Following a rally into mid-month, a few cycles come together which could then allow for back-half of September weakness. Recall that many of this year’s turns have all occurred mid-month, most notably the mid-August peak along with the bottom which occurred both mid-June and mid-July. Short-term positives include recent stabilization and good breadth this week on rallies. Additionally, Elliott-wave counts and positive sector rotation are definite positives for SPX despite Tech underperformance. Moreover, sentiment remains quite negative, and even without Technology participation, if Healthcare and Financials are working well, this represents more than 25% of SPX by market capitalization. Overall, I suspect we’re entering a time of heightened volatility, but initially this could work out in the Bulls’ favor into next week before reversing course. Steering defensive for the balance of September looks right, but with a near-term bullish bias into next week.
Financials strength helping to buoy market along with Healthcare while Technology lags
Financials and Healthcare combined account for nearly 25% of SPX and both groups’ Equal-weighted ETFs are higher by more than 3% over the last week.
This ability to come to the rescue given Tech’s underperformance has helped the market hold up a bit better than many would expect.
Insurance names have taken the lead, as might be expected during a time of defensiveness, though Investment Banks and Regional Banks have also outperformed.
Financials likely can strengthen further provided that rates hold up. This trade is likely to reverse in the next couple weeks, and Financials should lag performance as Treasury yields start to turn lower, likely from October-December.
$PGR, $MTB, $AFL, $NDAQ, $RF, $HBAN, $MS, and $GS are some of my favorite names within the Financials space. Insurance names look better than most and should be overweighted in the month of September.
Healthcare’s recent surge has also helped this group to snap back
While the breakdown in Healthcare from July into August was thought to be problematic for its relative performance, Healthcare has made a strong comeback, and now higher by over 3% over the rolling 5-day period. (REGN’s gap higher on Thursday is responsible for some of recent Biotech outperformance)
Stocks like $REGN, $DXCM, $HCA, $SYK, $MTD, $RMD, $ABMD, $EW, $CTLT, $DHR, and $CRL are all higher by more than 5% in the last week and have helped to jumpstart this relative performance.
As daily ratio charts of the Equal-weighted Invesco Healthcare ETF vs. SPX show below, this recent strength has snapped back to test an area of real importance vs SPX. The ability to recover this trend would speak volumes about Healthcare starting to show more strength at a time when the broader market badly needs it given Technology’s lagging.
While it’s premature to expect meaningful absolute or relative strength just yet, there remain some stellar technical names within this space that I find attractive.
Some of my favorites within Healthcare are: $MCK, $HUM, $UNH, $LLY, and $MOH.
Semiconductor weakness is a concern for this group on a 4-6 week basis given its leading tendencies
Semiconductor weakness has been a persistent problem for Technology for most of this year. This group broke down this Spring on an absolute, (and as shown below) on a relative basis vs. Technology and is just hitting new yearly lows vs the Equal-weighted Technology ETF by Invesco ($RYT)
Given its leading tendencies, this downturn might serve as a headwind for broad-based stock market rallies throughout the balance of September (Though I expect the back half of September to be weak anyhow)
For those who must invest in the Semi space, I find $ON, $TXN, $AMD and $KLAC to be my favorites within this sub-industry. I don’t mind owning these between now and year-end, though anticipate a possible rough stretch from 9/15 into 10/7.
One attractive relative relationship worth exploring within Technology
While Semis have been under pretty severe pressure in recent weeks, one of my favorite pairs is being long $AMD vs. short $NVDA.
The ratio chart between the two just broke out this week to the highest levels of the year, along with having exceeded downtrend lines going back since 2019, over three years ago. This dual breakout confirmation is a big positive towards expecting better relative strength in the weeks and months ahead out of AMD vs NVDA.
Bottom line, for many who gravitate towards NVDA as being one of the top names in the industry, technicals suggest that $AMD is preferred in the near-term and intermediate-term given its progress this past week. ($ON vs NVDA is even more positive, but AMD is selected given that this breakout literally just occurred this week and should show better near-term relative performance).