Sectors in US stock market that did OK against the SP500Sectors in US stock market that did OK against the S&P 500 index
Sectors
S&P 500 Sectoral OverviewWe have already mentioned that the S & P500 major rally started 57 weeks ago :
We are now facing a tough sale.
So which sectors were traded on the index or discounted in this process?
You can view them from the terminal.
I would like to write the sectors that remain inexpensive so that when we return to the favorable atmosphere, keep in our mind:
OSX : PHLX Oil Service Sector Index
XNG : NYSE ARCA Natural Gas
SPSIOP : S&P Oil and Gas
NQNACE : Nasdaq Yewno North America Cannabis Economy Index
CONCLUSION :
We see a discount from the commodity in general and the oil and gas sector in particular.
But in order for us to evaluate them, there should be a time when we expect both an increase in the related commodities and a positive atmosphere in the S&P 500, then we can turn to these sectors and make profitable investments.
Regards.
A note of caution as SPY reverse RSI flashes a sell signalOn January 2, I predicted that the SPY would rip higher because of extremely strong earnings and revenue growth forecasts for 2020. It's still true that analyst projections are high: Q1 earnings growth of 5.0% and revenue growth of 4.4%, and Q2 earnings growth of 6.6% and revenue growth of 4.9%. That compares to just 0.3% earnings growth for the entire year in 2019.
However, I'd like to sound a note of caution as the SPY struggles at a resistance level: namely, that it's pretty overvalued right now. According to FactSet, "The forward 12-month P/E ratio is 18.3. This P/E ratio is above the 5-year average of 16.7 and above the 10-year average of 14.9. It is also above the forward 12-month P/E ratio of 16.8 recorded at the end of the third quarter (September 30). Since the end of the third quarter (September 30), the price of the index has increased by 9.4%, while the forward 12-month EPS estimate has increased by 0.2%."
The high P/E multiple isn't necessarily a dealbreaker, because securities tend to trade at a high P/E when earnings expectations are strong. However, the risk here is that the index could quickly come down from this high P/E multiple if expectations weaken or if a lot of companies start to miss the analysts' raised expectations.
In my opinion, it's risky to buy the S&P 500 at this valuation. Now is a good time for value investing-- finding solid, undervalued, dividend-paying stocks and ETFs the market has ignored.
Sectors worth looking at:
Analysts see the most upside for 2020 in the energy sector, with 66% of companies in this sector having a buy rating.
Utilities posted absurdly strong earnings last quarter, especially in the clean and renewable energy segment. This segment looks pricey, but it should continue to perform if oil and natural gas prices stay high this quarter. The utilities sector has strong execution, improving profit margins more than any other sector.
Communications services companies also posted strong performance last quarter that should continue moving forward. The entertainment segment has been especially strong. Watch the monthly jobs reports to see if "leisure and hospitality" continues to be the strongest segment of the labor market. Telecommunications companies also should benefit from the 5g revolution.
The financials sector is cheap right now even as it experiences an earnings boom. The low valuation reflects the recession risk to banks and the political risk to insurance companies, so buyer beware. The sector is still projected to post gains, and it might be worth buying for the dividends.
The sector most likely to beat analyst expectations is consumer staples. This sector has the lowest percentage of buy ratings (39%), but it had the highest percentage of positive earnings surprises (88%) last quarter.
Sectors to stay away from:
The most overvalued sectors are consumer discretionary and information technology, both with forward P/E multiples over 22, so beware those sectors. Consumer discretionary is especially dangerous, with many companies having issued negative guidance last quarter. However, isolated companies in the sector are worth buying, including Foot Locker and Zumiez. Macy's may also be a buy, having nuked analyst expectations last year, and currently trading at 6.28 forward P/E.
Healthcare, industrials, and materials companies also issued disproportionately negative guidance last quarter. If we get a really strong trade deal with China, however, the outlook for industrials and materials could turn positive very quickly.
Real Estate sector in an up-channelEWRE has been in an upward channel vs. the S&P 500, and is currently near the bottom of the channel. That makes it an attractive buy today, especially after last week's extremely positive housing report that showed rents and property values rising and mortgage rates and inventory numbers falling.
Real Estate Sector Weekly Analysis Neutral / Range Bound forecast for the week. Likely down and then up, ranging in the shown area. Selling short term premium on either side of range.
Avaya a very attractively valued defensive stock for OctoberOctober is expected to be a bad month for most technology stocks due to the earnings recession, but the bright spots in the sector are software and IT services. Avaya sits in both those categories (primarily software). Down roughly 30% since its IPO this time last year, Avaya is surprisingly inexpensive at close to its all-time low. Its RSI is recovering from oversold. The fundamental analysts at S&P Capital IQ rate Avaya as highly undervalued.
In my opinion, Avaya has potential earnings catalysts ahead. The company has operated at a GAAP loss in 2019 (-$480 million at the midpoint of guidance), but this was mostly due to a one-time impairment charge due to stock price weakness. On the whole the company is profitable and has positive cash flow. Avaya expects to report a profit this quarter 4 times higher than the same quarter last year ($44 million at the midpoint of guidance, compared to $11 million last year). The company has consistently beaten the pants off analyst estimates on its earnings reports. Last quarter Avaya signed two big government contracts and also reported that it was working with Intel's AI division to improve the conversational intelligence of its software.
On September 20, Avaya got some big bullish call options activity. Perhaps this was in anticipation of its September 24 news release, "New Innovations Unveiled For Avaya IX™ Contact Center Portfolio." I have to admit, investor response to this release has been underwhelming. However, the stock could get a boost when Avaya showcases its new product features at GITEX Technology Week in Dubai on October 6-10. In any case, I expect a technical recovery from oversold levels and a mid-term improvement in the stock price on the strength of strong guidance.
Look for Adobe to follow through on yesterday's breakoutYesterday Adobe broke upward through a downward-sloping trend line. Today it pulled back, but weak volume on the pullback suggests the stock will follow through. As a software company, Adobe is relatively insulated from the earnings recession afflicting other parts of the tech sector. Adobe beat analyst estimates on its recent earnings report, which is what's moving the stock upward. Earnings guidance was a little softer than analysts expected, but the forecast of 20% growth is still very respectable. Adobe has a 9/10 Equity StarMine Summary Score and is rated somewhat undervalued by S&P Capital IQ. Its P/E of 50 is high for the sector, but pretty standard for a growing mega-cap company. Adobe is about 10% off its high from July.
Lexington Property Trust a defensive growth stock for OctoberLXP blew away analyst expectations on its last earnings report, beating by 200%. It got a nice pop after earnings, then collapsed when it announced a $10 million share offering. It started to recover after it announced what it was doing with the money raised from investors: purchasing new properties to accelerate its growth. If LXP is as good a steward of the new properties as it has been so far, I'm not worried about the share offering; it should propel the company's expansion rather than dilute my shares. LXP has a 9.5/10 Equity StarMine Summary Score and is rated "undervalued" by the fundamental analysts at S&P Capital IQ.
Amidst the coming "earnings recession" this quarter, real estate is expected to be one of the few sectors that outperform. The sector as a whole is overbought, but LXP is a better value than most real estate stocks, having dipped to mid-RSI channel ahead of its ex-dividend date tomorrow. LXP pays a dividend of 10 cents per share, down from 18 cents per share last fiscal year. (I actually like a lower dividend, because it gives the company more capital to reinvest.) Unlike many dividend stocks, which take a big hit after the ex-dividend date, LXP's price usually takes its hit before the dividend and then recovers after. In my opinion this is a pretty good bet to buy ahead of the dividend and hold as value/growth stock for October.
UNH insider sales flash a warning sign ahead of earningsUnitedHealth Group has had an incredibly strong showing this year, and right now it's priced pretty attractively at oversold level on the hourly chart. On its daily chart it's at RSI 38, nearing oversold (RSI 30) but not quite there yet. It also hasn't yet tested its August low of 220.78 or its one-year lows of 208.07 and 216.84. I suspect we'll get a bounce tomorrow from the hourly oversold level, then fall some more to the 216-220 range. At that point we should be about oversold on the daily chart and should bounce into earnings on October 15.
The average analyst price target on UNH is about 299, implying about 33% upside from the current price. Analyst estimates of UNH earnings have held steady for the past month at 3.77, significantly better than 3.41 the same quarter last year. UNH has an 8.7/10 Equity Starmine Summary Score rating. So most signs are bullish. However, company director Richard Burke sold 10,000 shares last week. Other directors also recently sold thousands of shares. All this insider selling doesn't inspire confidence for good earnings this quarter. On that basis alone, I don't think I'd hold this for anything more than a pre-earnings bounce. On the other hand, insider sellers may be responding to political risk rather than to the company's financials.
The healthcare sector is expected to report good earnings this quarter, which could make it attractive as a defensive play in an earnings recession. Healthcare is a defensive sector that usually does well when the rest of the market is down. Right now healthcare stocks are cheap, which makes them even more attractive. However, with Elizabeth Warren leading the Democratic pack, UNH's share price may continue its breakdown. Health insurance and pharmaceutical companies are at particular risk from Warren's "Medicare for All" plan, and you may be able to chart healthcare stocks' performance from now until the election as a function of Warren's popularity in the polls.
RECESSION IMPENDING?-MEDIUM TERM VOLATILITY VIX|PREMIUM ANALYSISVIX: Volatility Index - Extension to the US (SPX) Sectors Technical Analysis Series - 17th of August 2019 (9 Minute Read)
As it can be observed from the chart, this is an extremely complex(Premium) volatility analysis . The purpose of this chart is to evaluate the probability and the timing of the next recession in the short to medium term.
Now, let's breakdown the labels of the chart by starting with the structural build up . The purple horizontal line at the bottom(~8.6) signifies the peak of the cycle and the lowest level of volatility . The same trough in volatility can be noticed in both 2006 and the end of 2017. This is significant because, the first signs of weaknesses in the economy were noticed a year after the peak- in 2007 and 2018, respectively.
Since the correction in 2018, the VIX has been building an Ascending Bullish Triangle ; that is currently on D. The top of the channel coincides with previous peaks of around ~50 (labelled with blue). A breakout confirmation of the Ascending Triangle, would be if the VIX closes above the Ichimoku cloud at ~30 ( the black line) . At the same time, the meaning of this breakout will signify the onset of the next recession.
Zoomed in chart, showing the Ascending Triangle :
There are 3 Fibonacci Indicators that are used in the chart and 1 pitchfork based on the ascending triangle. The Pitchfork and the vertical Fibonacci time frames are used as clues for the timing of the peak of volatility in the upcoming periods. The significance of the Fibonacci Spiral is linked with the breakout of volatility of the Ascending Triangle and a formation of a new equilibrium(by Fib Extension).
Beyond Technical Analysis- Applying context to my work: In May I posted my first Wave Analysis of the SPX( #2 Link Reference down below ). It predicts that a recession is impending around Q4 2019/ Q1 2020 . Since then there have been several factors (including the Ascending Triangle in the VIX ) that have intensified the fears of a recession in the near term. Just so I do not repeat myself; some of these factors I analysed in my series about the US SPX Sectors( Link #1, Series Finale Episode #11-XLU ). The recent Yield Curve Inversions ( Link #3 ) is somewhat significant and very contributing factor that estimates a recession within 3-5 quarters of the occurrence of the inversion . This is based on my extensive readings on the literature on US yield curve inversions .
Finally! The question that needs an immediate answer - Will there be a recession in the near term ?
- The annoying answer is that, there is a high probability. What do I think? - We have certainly talked ourselves and formed expectations of a recession. This is quite unnatural. To the general public and the average investor, recessions are usually very unexpected ( best and most recent example are the recessions of 2008/2001 ).
In a Binomial Probability Model : The most contributing factor for the current recession fears, that could reverse the fearful feelings , revitalize the economy and bring back confidence to the market would be a successful US-China Trade deal . Such deal in addition to an optimal outcome to the 2020 Election , would extend the cycle even further. In the most bullish case with a Trade Deal the VIX would continue to trade in a short range and break-off from the ascending triangle pattern. I am quite optimistic that a deal will eventually happen, otherwise President Trump will not win 2020 and a recession will be inevitable by 2021. Of course, we all know that Trump would do anything to win the next elections.
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I do realize that my charts are quite hard to be understood, mostly because they are labelled to the smallest and extremest of details. If there are any poor understandings of the labels, I'd be able to answer any additional questions in the comments.
Step_Ahead_oftheMarket-
{Make sure to check out my previous series on US( SPX ) Sector including 11 episodes of the major US sectors}
1. Series Finale ; Episode 11: US Utilities(XLU)
2. SPX Elliott Wave Analysis of the current Cycle :
3. US T. Bonds Yield Curve Inversion 3 months to 5/10 years:
Full Disclosure : This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Ventas Inc - Bullish defensive ideaVTR is real estate investment trust (REIT). The technicals are great (check chart).
Market analysis:
Generally after an inversion in a yield curve , the following sectors tend to outperform the market:
XLU (Utilities)
XLRE (Real Estate)
XLP (Consumer Staples)
The following tend to underperform :
XLK (Technology)
XL (Industrials)
XLB (Materials)
Semiconductor strength will continue, target 208SOXL attempted a breakout above its channel and above April's highs, but got rejected and dropped back down to support at the 50-hour moving average. Here it's showing renewed strength, with volume turning green and candlesticks looking bullish. I think it will make another run at 202, this time pushing through to previous highs around 208.
SOXL has strong upward catalysts in the form of strong earnings and guidance this quarter. MU got an earnings beat earlier this quarter, and its recent ascending triangle break suggests it may rise to 51.50, for $4 per share upside. (However, MU is 5% overvalued compared to its average analyst price target of $45 per share.) We've just had earnings beats from Taiwan Semiconductor, Texas Instruments, and Intel that imply the sector is recovering in the second half of the year. TSM has 17.5% upside to the average analyst price target! Intel-- SOXL's largest holding-- can still gain $2.50 per share before it reaches the average analyst price target. QCOM, another large holding, has 12.5% upside to the average analyst price target, with earnings coming up tomorrow. A beat by QCOM could trigger the run up through the 202 resistance level.
As always, this is just an idea about how the market will move, not investment advice.
Biotech down on news, may enter new downtrend.The biotech sector fell today news that Donald Trump intends to sign an executive order demanding that pharmaceutical companies give the US government "favored nation" prices. The news may not be as bad as it sounds, because Trump is apparently only launching a pilot program that will effect a small number of drugs. However, it's hard to predict the market's reaction to the news. Biotech is still above its trendline and its MACD is still above the signal line, so it's still bullish for now. But it could breach both tomorrow and enter a downturn. Beware if XBI falls below about 84.90 tomorrow.
Consumer discretionary MACD cross on weekly chartThe consumer discretionary (i.e. retail) sector has made a bullish MACD cross on its weekly chart. It's also above signal line on the daily chart. This suggests the sector is entering a new medium-term uptrend. Now should be a good time to buy and hold the sector.
Consumer staples bullish MACD crossThe Invesco equal weight consumer staples fund made a bullish MACD cross today on the daily chart. It's also above signal on the weekly chart, so this cross should have some legs. Consumer staples are a counter-cyclical sector, so they tend to do well as the economy heads toward recession.
Consumer staples and utilities to gain while market pulls backNearly every single sector in the entire market is either overbought or down-trending right now, with two exceptions. Consumer staples and utilities are both climbing out of oversold territory and should gain Friday while the rest of the market pulls back.
#SP500 Sectors identical path to #SPX - #XLI #XLF and #XLK Just another indicator, they are sectors within the SPX, so they should follow the index, but these sectors are showing the path.
XLE bullish weekly setupI am expecting XLE to contest 95 Q2 2019. With the weekly flag and early signs of push beginning I expect this sector to continue to strengthen and be a much stronger pick next year.
All sectors in a weekly graphStill no signs of an imminent crisis, although Telecommunications SP:S5TELS sector is going in a descending triangle. Could it trigger the inversion?
Gold and Silver NASDAQ:XAU , in the meantime, broke an important support.
SPX and sectors correlations 10 day PeriodSPX and sectors correlations 10 day Period, Advance Decline ratio (ADL) and ADL correlation 10 day Period
Sector Correlations
XLY Consumer Discretionary
XLP Consumer Staples
XLE Energy
XLF Financials
XLV Health Care
XLI Industrials
XLB Materials
XLK Information Technology
XLU Utilities
