Stocks Rally Ahead of a New Stimulus Package in the US and Key Earnings Reports on Thursday

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Key Points

  • Stocks Move Higher in Advance of Fresh Stimulus
  • Communication Services in Focus Ahead of Key Reports
  • Materials Flash a Relative Breakout
  • Utilities Finding Support at 2018 Lows?
  • Futures Point to a Lower Open Today

Key Chart – The Communication Services SPDR ETF (XLC)

All eyes will be on the Communication Services space this week with major reports from FB, GOOGL and EA due on Thursday. The fund carries a Bullish Rating and is oversold as it trades near 52-week highs. Chaikin Money Flow is bullish and there is support at the rising long-term trend line near $54. The Power Bar Ratio is bullish.

Stock of the Day – Sysco Corporation (SYY)

Sysco Corporation (SYY) has a Very Bearish Chaikin Power Gauge Rating and has been lagging the SPY since January. The stock is overbought based on our indicator and Chaikin Money Flow has been bearish all year. SYY is trading at the declining long-term trend line and triggered a Reversal Sell signal today. The 21-day ATR is currently $2.34.

The Chaikin Power Gauge Rating for SYY is Very Bearish due to very poor financial metrics and very weak price/volume activity. The stock also has strong earnings performance. SYY’s financial metrics are very poor due to a high long term debt to equity ratio and high price to book value. 

Pre-Market Movers

Advancers: PII (6%), SBAC (3%), NI (3%), LH (3%), SHW (3%)

Decliners: CLR (8%), OMC (7%), AWI (4%), HOG (3%), CGNX (3%)

Market Commentary/Looking Ahead

Major US equity indexes finished higher on Monday Growth and momentum factors outperformed after lagging last week. Technology and Materials were the best performing sectors while Utilities and Financials lagged. Treasuries were weaker with the curve steepening. The dollar was lower on the major crosses. Gold finished up 1.8% at a new all-time high. WTI Crude finished up 0.8%, reversing earlier declines.

  • Outperformers: Tech +1.61%, Materials +1.41%, REITs +1.17%, Consumer Disc. +0.87%, Communication Svcs. +0.78%
  • Underperformers: Utilities (1.26%), Financials (0.81%), Energy +0.21%, Industrials +0.39%, Consumer Spls. +0.54%, Healthcare +0.72%

S&P futures are down 0.2% after Asian equities were mixed overnight. European equities are mostly lower, reversing earlier gains. Treasuries are unchanged to slightly weaker. The dollar is stronger vs the euro but lagging the yen. Gold is down 0.5% after trading at a record high yesterday. WTI Crude is off 0.3%.

A Pause For Precious Metals is in Order

The rally in precious metals has been sharp and fast and likely needs a pause in the near-term. The Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) is at a new 52-week and is extended above the rising long-term trend line and the upper volatility band. The fund is also overbought based on our indicator. While we remain bullish from a trend perspective, we are not inclined to chase strength in the group at current levels. 

A Closer Look at Sector Rotation

The Communication Services Sector (XLC) Relative to the S&P 500

The S&P 500 Communication Services sector relative to the S&P 500 continues to trade above the rising 200-day moving average and is consolidating above the breakout level. The RSI remains in bullish ranges, keeping momentum to the upside for now. On Thursday we will hear earnings reports from FB, GOOGL and EA which are important names in the group. Trend: Bullish

S&P 500 Consumer Discretionary Sector (XLY) Relative to the S&P 500 

The Consumer Discretionary sector remains above the 200-day moving average and is trading at two-year highs on a relative basis. The RSI is in bullish ranges but we note that a slight bearish divergence remains in place. AMZN is a large weight in this group and we strongly suggest taking analysis to the industry level when identifying bullish and bearish opportunities. AMZN reports their earnings on Thursday. Trend: Bullish

S&P 500 Consumer Staples Sector (XLP)  Relative to the S&P 500

On a relative basis, the Consumer Staples sector remains below the 200-day moving average but has regained broken support. The RSI made a small bullish divergence at the recent lows which awaits confirmation. Should the market continue to work higher, weakness in this defensive group would be a positive development for the bulls.  Trend: Bearish

S&P 500 Energy Sector (XLE) Relative to the S&P 500

The Energy sector remains in a relative downtrend, below the steadily declining 200-day moving average. The RSI is shifting back to bearish ranges after barely reaching overbought levels on the rally attempt from the March lows which are still in play to the downside in the near-term. Trend: Bearish

S&P 500 Financials Sector (XLF) Relative to the S&P 500

The Financials Sector remains below the 200-day moving average relative to the S&P 500. Recent rally attempts have been halted below resistance and the RSI has broken its short-term uptrend from the March lows. The ratio is now testing the lows from May and it is important for this level to hold. The weight of the evidence suggests further downside for the group. Trend: Bearish

S&P 500 Health Care Sector (XLV) Relative to the S&P 500

The Health Care sector has held support at the 200-day moving average  and continues to grind to the upside. The RSI has broken a near-term downtrend after leaving a small bullish divergence on the chart. Trend: Neutral

S&P 500 Industrials Sector (XLI) Relative to the S&P 500

The Industrial sector relative to the S&P 500 remains below the declining 200-day moving average and near-term resistance. The RSI is trying to hold bullish ranges which could be a sign that the downtrend is ending but we would like to see the ratio break above near-term resistance before becoming more bullish on the group. More time is needed in the base-building process. Trend: Neutral

S&P 500 Information Technology Sector (XLK) Relative to the S&P 500

The Information Technology Sector remains in an uptrend relative to the S&P 500. The ratio is above the rising 200-day moving average and near-term support. The RSI is moving higher after holding within a bullish regime on the recent pullback. We look for leadership in the part of technology to begin to re-assert in the near-term. Trend: Bullish

S&P 500 Materials Sector (XLB) Relative to the S&P 500

The Materials sector has broken above resistance and the 200-day moving average relative to the S&P 500. The RSI is moving toward overbought levels after making a series of higher lows. Of all the “reflation” sectors in the market, Materials remains our favorite from a trend perspective. Trend: Bullish

S&P 500 Real Estate Sector (XLRE) Relative to the S&P 500

The Real Estate sector is below the 200-day moving average and the lower bound of the trend channel. The RSI is in bearish ranges confirming the weak relative trend. Trend: Bearish

S&P 500 Utilities Sector (XLU) Relative to the S&P 500

The Utilities sector remains under pressure relative to the S&P 500. The ratio is also below the 200-day moving average which is moving lower. The RSI is in bearish ranges, confirming the price trend but we note that it has not become oversold on the recent break lower in price which is holding at the 2018 lows. Trend: Bearish

Take-Away: At the sector level, we continue to see a rotation back to growth as the base case. The trend in Materials has become bullish on a relative basis, in line with our views on this cyclical sector. 

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Disclaimer

Disclaimer: Chaikin Analytics LLC is not registered as a securities broker-dealer or advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Chaikin Analytics does not recommend the purchase of any stock or advise on the suitability of any trade. The information presented is generic in nature and is not to be construed as an endorsement, recommendation, advice or any offer or solicitation to buy or sell securities of any kind, but solely as information requiring further research as to suitability, accuracy and appropriateness. Users bear sole responsibility for their own stock research and decisions. Read the entire at www.chaikinanalytics.com/disclaimer

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