Stock

The S&P continues to push higher, with the equity benchmark almost reaching 6300 this week for the first time in history. With so many potential macro headwinds still surrounding us, how can the market continue to reflect so much optimism? On the other hand, when will bulls wake up and realize that this market is obviously overextended and rotate significantly lower?

With the S&P 500 once again achieving new all-time highs, and with Q2 earnings just around the corner, I thought it would be a perfect time to revisit an exercise in probabilistic analysis. Basically, I’ll lay out four different scenarios for the S&P 500 index between now and late August. Which path do you see as the most likely and why? Watch the video, check out the first scenarios, and then cast your vote!

By the way, we last ran this analytical process on the S&P 500 back in May, and check out which scenario actually played out!

And remember, the point of this exercise is threefold:

1. Consider all four potential future paths for the index, think about what would cause each scenario to unfold in terms of the macro drivers, and review what signals/patterns/indicators would confirm the scenario.
2. Decide which scenario you feel is most likely, and why you think that’s the case. Don’t forget to drop me a comment and let me know your vote!
3. Think about how each of the four scenarios would impact your current portfolio. How would you manage risk in each case? How and when would you take action to adapt to this new reality?

Let’s start with the most optimistic scenario, with the S&P 500 index continuing the recent uptrend phase to retest all-time highs by June.

Option 1: The Super Bullish Scenario

The most bullish scenario would involve the S&P 500 continuing a similar trajectory that we’ve seen off the April low. Growth continues to dominate, tariffs remain essentially a non-issue, volatility remains lower, and the market moves onward and ever upward!

Dave’s Vote: 10%

Option 2: The Mildly Bullish Scenario

What if the uptrend continues, but at a much slower rate? The “mildly bullish scenario” would mean the S&P 500 probably tops out around 6300-6400 but doesn’t get any further. Perhaps a leadership rotation emerges, and technology stocks start to pull back as investors rotate to other sectors and themes. Lack of upside momentum from the largest growth names slows the uptrend in a big way.

Dave’s vote: 30%

Option 3: The Mildly Bearish Scenario

Maybe “the top” is already in, and even though July is traditionally a strong month, we see a corrective move into August that brings the S&P 500 down to the 200-day moving average. Bulls and bears would probably feel quite vindicated here, as bulls would see this as a healthy pullback, and bears would see this as a serious wake up call for investors.

Dave’s vote: 45%

Option 4: The Very Bearish Scenario

We always need a doomsday scenario, and here we’ll describe how the S&P 500 could go back down to retest the May price gap. If Q2 earnings season becomes all about companies reflecting on a significantly negative impact from potential tariffs, and investors begin to not just complain about overvalued stocks but actually start selling as a result, we could certainly see a downside move to retrace about 38.2% of the April to July uptrend phase.

Dave’s vote: 15%

What probabilities would you assign to each of these four scenarios? Check out the video below, and then drop a comment on which scenario you select and why!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

As we navigate the evolving stock market landscape, understanding key sectors and their trends is important, especially during earnings season. This week, the spotlight shines on the Financial sector, with several of the largest banks reporting. Five of the top 10 holdings within the Financial Select Sector SPDR ETF (XLF) are on deck: J.P. Morgan (JPM), Goldman Sachs (GS), Bank of America (BAC), Wells Fargo (WFC), and Morgan Stanley (MS). 

This week we will focus on the Financial sector via XLF and zoom in on one of its top components, Goldman Sachs.

The Financial Sector: A Technical Look at XLF

XLF has been outperforming the S&P 500 ($SPX), experiencing new all-time highs, and has been a leading sector in the most recent market rebound.

Now that all banks that were susceptible to the Fed’s stress test have passed with flying colors, questions loom about whether less stringent regulations will lead to more growth. The sector has not experienced much M&A activity, and the IPO market has yet to come back to a healthy level of activity. However, there is hope that a banking renaissance is on the horizon, and maybe this quarter will give a rosier outlook than more recent forecasts.

Technically, XLF looks promising. Shares broke out to new all-time highs ahead of earnings and are now set up with good risk/reward potential for investors. 

The pattern from which it broke out is a bit of a wonky head-and-shoulders pattern. I’d call this a stretch as it isn’t picture perfect, but the price image presented is close enough to set parameters to trade. 

The breakout on a gap to new highs is extremely bullish, and that gap level could be used as a stop-loss to the downside, worst case should be the rising 50-day moving average. Buyers should come back into the sector there on a dip.

Goldman Sachs (GS): A Bellwether

Goldman Sachs, the largest component in the price-weighted Dow Jones Industrial Average, reports results on Wednesday morning just days after hitting all-time highs. Investors will be looking for any commentary focused on tariffs and margins. 

Has there been any impact on their results, or have concerns about inflation been overblown? Any earnings pressure on their bottom line could cause ripple effects throughout other sectors like industrials, materials, and technology. 

Shares declined 33% then rallied 65% from their April 7 lows. Shares may need a breather as they are overbought, but that’s where opportunity may lie. Wouldn’t chase it just yet. I would own for the long term, but price action could be very interesting when they report next week. 

One bold prediction — look for a possible stock split announcement. Since their debut in 1999, shares have never split. Seeing the recent price surge and its size in the Dow, that option should be on the table. 

Technically, shares have been on a tremendous run as they’ve rallied 65% from their April 7 lows. Shares may need a breather as they are overbought, but that may be where the opportunity lies when they report next week. 

The stock has rallied with a series of gaps along the way. Those gaps tell a story, and it’s worth watching the most recent gap from $690 to $700. Each jump higher has not experienced a full retracement — a gap fill, if you will.

The gaps higher have been very bullish. The first large gap — a breakaway gap — started the main part of this rally. We have seen a series of smaller gaps that helped extend the rally. Now, we may be tiring. Watch the $690 level to see if that gap can hold. If it can’t, then there may be more selling pressure over the near term. 

A healthy pullback given the strong bull run is likely, but buyable. A break below $690 could see a swift move lower to the $665 level. If things turn negative, then the rising 50-day moving average, which coincides with a key Fibonacci retracement level just below $620 would be an ideal entry point from a risk/reward perspective. 

The good news is that any weakness in the stock looks like it should be met with great opportunities to enter the name. The long-term trend is up, and the momentum is there not only in the stock but within the sector. The long-term trader shouldn’t fret earnings; the swing trader may get an opportunity to buy a dip from an overbought condition. The bad news would be that the stock gaps higher again and continues its upward trajectory. 

Beyond Financials: Johnson & Johnson (JNJ)

While financials take center stage, we want to touch upon another significant company reporting this week: Johnson & Johnson (JNJ).

JNJ shares have remained relatively flat for the better part of five years. Much of the earnings focus will be on plans to navigate patent expirations. 

Merck acquired Verona last week. The patent cliff will continue to be a hot topic for the entire pharma industry. As for JNJ, it’s confronting the expiration of exclusivity on Stelara, its $10B+ immunology blockbuster drug. The exclusivity expires first in Europe this year and then in the U.S. in 2026.

As for reaction to earnings, don’t expect too much activity. The average move post-results has been +/- 2.05%. Shares have traded lower after five of the last seven times. Shares of the Dow stock are up 8% year-to-date and -9% off their highs.

Technically, there isn’t much to see here. We backed it out to look at price in a five-year weekly range to illustrate that point.

Shares have been in a wide range between roughly $138 to $168 over this lengthy span. Yes, I yawned when I typed this out — it’s that boring. We don’t expect much to change, but there are small setups for a shorter-term swing trader.

The stock, while breaking above the midpoint of this longer-term range, is forming a bullish ascending triangle and has, albeit tight, risk/reward parameters for those looking to trade. 

To the downside, look for the continued near-term uptrend to hold and find support right at the 200-day moving average just below $153. A good entry point in which one could manage risk. 

To the upside, a break above $158 could take shares to their recent highs and slowly and steadily towards the $168 level. The set-up is far from ideal when looking at the longer-term action, but near term, there could be a quick play and maybe, just maybe, shares can finally escape the longer-term neutral range. 

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Investing in triple-leveraged ETFs may not be on your radar. But that may change after you watch this video. 

Tom Bowley of EarningsBeats shares how he uses the 3x leveraged ETFs to take advantage of high probability upside moves. Tom shows charts of 3x leveraged ETFs that mirror their benchmark — TNA (Russell 2000), SOXL (Semiconductors), and LABU (Biotech), and maps out how you can use the setups in these charts to multiply your returns. 

With money rotating heavily into growth stocks, investors should be looking for opportunities. Tom shares charts of indexes, sectors, and individual stocks/ETFs that are displaying technical strength and strong accumulation patterns. 

Ready to multiply your returns while the market’s moving higher? Watch Tom chart out the trades he’s making today. 

This video was published on July 10. Click this link to watch on Tom’s dedicated page. 

Missed a session? Archived videos from Tom are available at this link. 

Over a number of years working for a large money manager with a rich history of stock picking, I became more and more enamored with the benefits of scanning for constructive price charts regardless of the broad market conditions.  Earlier in my career, as I was first learning technical analysis, I devoured work by stock picking guru Mike Webster and other William O’Neil disciples who advocated for finding strong charts in any market environment.

Given that background, I was super excited this week to apply a true stock picker’s mindset, with the goal of identifying one compelling chart in each of ten S&P 500 sectors.  From Communication Services to Utilities, there are plenty of interesting technical setups and nuances to discuss.  And if you’re wondering why there are only ten charts instead of 11, that’s because I skipped Real Estate.  It’s a smaller sector, which I tend to think of more in terms of sector rotation than specific security selection.

Let’s kick things off with a top-performing chart in Communication Services that is showing all the signs of accumulation.

DoorDash Inc. (DASH)

While the mega cap Magnificent 7 stocks like Meta Platforms (META) and Alphabet Inc (GOOGL) tend to grab all the headlines, I’m more intrigued by other names in this sector demonstrating positive technical characteristics.  DoorDash has been making higher highs and higher lows, and remains above three upward-sloping moving averages.

The price is above the 21-day exponential moving average, which is above the 50-day simple moving average, which is above the 200-day simple moving average.  Combined with strong but not excessive momentum, along with improving relative strength, and we have a chart that continues to feature bullish signs in July 2025.

Booking Holdings Inc. (BKNG)

If it seems as if DoorDash is a little too overextended, Booking Holdings is a bit earlier on in its breakout journey.  Here we can see a clear resistance level around $5300, with a breakout and subsequent retest confirming a new uptrend phase.

When a chart like this shows a clear and consistent resistance level, the initial breakout can be quite tempting on the long side.  The subsequent pullback to that same breakout point, followed by new support at the breakout point, serves to validate the breakout and confirm the bullish reading.

With charts like BKNG, I like to use the 21-day exponential moving average as an initial warning sign.  As long as the price remains above this short-term trend mechanism, then the uptrend is still intact.  If and when the price violates this moving average, that’s when I like to review the chart to determine whether the stock still deserves a place in my portfolio.

Boston Scientific Corp. (BSX)

Our final example, Boston Scientific, is one that I would argue still has a bit to prove.  We can observe a clear resistance level around $107.50, which was initially set in February and then retested in May and June.  

This is exactly where I would leverage the Alert Workbench on StockCharts to let me know when the price has finally broken above this crucial resistance level.  I love to save potential breakout candidates to a new ChartList, and then set alerts for if and when the price finally breaks above the entry point.  That way, you’re able to identify an opportunity and develop a simple trading plan up front, and then let StockCharts do the “heavy lifting” and keep a close watch on the price action in the days and weeks to come!

To see the other seven charts in all their glory, head over to the StockCharts TV YouTube channel!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

marketmisbehavior.com

https://www.youtube.com/c/MarketMisbehavior

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

A good trade starts with a well-timed entry and a confident exit. But that’s easier said than done. 

In this video, Joe Rabil of Rabil Stock Research reveals his go-to two-timeframe setup he uses to gain an edge in his entry and exit timings and reduce his investment risks. 

Joe shows you how he spots the big trends on a higher timeframe chart and then drops to a shorter timeframe chart to pinpoint his entries and exits. Watch him dissect the S&P sectors, overall market, and specific symbols using the multiple timeframe approach. Follow along and come up with a systematic method that can help you gain more confidence in your investment decisions.  

The video premiered on July 2, 2025. Click this link to watch on Joe’s dedicated page. 

Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.

For those who focus on sector rotation, whether to adjust portfolio weightings or invest directly in sector indexes, you’re probably wondering: Amid the current “risk-on” sentiment, even with ongoing economic and geopolitical uncertainties, can seasonality help you better anticipate shifts in sector performance?

Current Sector Performance Relative to SPY

To find out, let’s first look at how sectors are performing relative to the SPDR S&P 500 ETF (SPY), our S&P 500 proxy. The StockCharts Market Summary Mini Charts tab in the US Sectors panel shows you sector ETF performance and its relative performance against SPY.

FIGURE 1. MARKET SUMMARY US SECTORS PANEL. The new micro charts feature provides a chart of each sector’s ETF plus its relative performance against SPY, allowing you to gauge a sector’s strength against the broader market.

Looking at each sector chart over a three-month time frame, only two sectors are outperforming relative to SPY:

1. Technology Select Sector SPDR Fund (XLK): Currently outperforming SPY by 13.85%.
2. Industrial Select Sector SPDR Fund (XLI): Outpacing SPY by a modest 2.53%.

Spotlight on Technology and Industrials: Leading Sectors in a Risk-On Market

As a side note, Technology and Industrials are two sectors that align with the risk-on narrative. This suggests that the market is currently favoring higher-beta stocks (as XLK’s performance reflects) over safer sectors and that demand for industrial goods is generally rising, a sign investors expect the economy to strengthen.

Understanding Sector Seasonality: What History Tells Us

Now, let’s turn to seasonality. In this context, seasonality refers to the tendency for certain sectors to perform better during specific periods and worse during others. While past performance never guarantees future results, it can help you anticipate how a sector might behave based on historical tendencies, not certainties. 

So, what might the seasonality charts suggest about XLK and XLI in the coming months?.

XLK Seasonality Trends: Tech Sector’s Strongest Months

Take a look at XLK’s 10-year seasonality chart.

FIGURE 2. 10-YEAR SEASONALITY CHART OF XLK. While September appears to be tech’s only bearish month from a seasonality perspective, its strongest months are November and July. 

Over 10 years, July has been XLK’s second strongest month, with positive closes 90% of the time and an average monthly return of 4%. The most profitable month is November, with an 89% positive close rate and a 5% average monthly return. August isn’t bad, but July is exceptionally strong and reflects its current overall performance.

XLI Seasonality Patterns: When Industrials Tend to Outperform

Switching over to a seasonality chart of XLI, we get a similar picture.

FIGURE 3. 10-YEAR SEASONALITY CHART OF XLI. July is XLI’s strongest month for positive closes, and November is its strongest month for average seasonal returns.

This pattern is pretty exceptional: over the last 10 years, XLI has posted a historical 100% positive close rate in July, with an average return of 3.5%. The strongest returns, however, tend to occur in November, which shows an 89% positive close rate and an average return of 6.5%. The months in between are relatively unremarkable, making July and November stand out significantly. 

Technical Analysis of XLK and XLI

Will July be another up-month for XLK and XLI? Starting with XLK, let’s switch over to a six-month daily chart.

FIGURE 4. DAILY CHART OF XLK. Tech’s upward trajectory is now in overbought territory, yet there’s little sign of slowing.

XLK is at an all-time high, and there’s no clear indication that it’s pulling back just yet. 

Meanwhile, the Relative Strength Index (RSI) is suggesting that XLK has been occupying overbought territory since late June. However, bear in mind that an RSI reading at this level can sustain itself for an extended period. And if you look at the On Balance Volume (OBV) indicator, it suggests that the buying pressure trend is still rising with no signs of slowing down.

Actionable Tip: Remember, July is one of XLK’s historically strong seasonal months. 

• But if it does pull back soon, you might expect a bounce near $242.50, which is an area marked by a series of historical swing highs. 
• Notice how the ZigZag line highlights these key swing points. 
• Other areas of support sit around $235, its most recent swing low, and $225, the level of its most recent swing low.

Now let’s turn to the daily chart of XLI.

FIGURE 5. DAILY CHART OF XLI. Industrials are also surging, although buying pressure may be starting to decline.

Similar to the previous chart, XLI shows a move higher that places it well into all-time high territory. July is also an exceptionally strong month for XLI, but does it have enough fuel to return the seasonal 3.5% that it typically averages this month?

The RSI signals that XLI may be overbought, which, again, can remain there for some time, while the OBV suggests that buying pressure may be easing into a pullback. However, price continues its upward trajectory.

Actionable Tip: If XLI dips, the pullback may be shallow, potentially bouncing near $145, its most recent swing high. A more substantial support level lies around $141, where multiple swing lows have formed. If XLI drops below $141, you can expect further downside movement.

At the Close

While no strategy can guarantee success, combining seasonality insights with price action can help improve your market timing. Keep an eye on support levels as well as momentum and volume. Remember that the strongest months for XLK and XLI tend to be July (the current month) and November. You can add XLK and XLI to your ChartLists and keep an eye on them, especially in the months ahead. 

However, the big takeaway here is to consider using seasonality charts alongside the various tools in the Market Summary, whether you’re considering an individual stock, index (sector or industry), or other asset classes, like commodities and monetary metals. While price action can help you nail down specific market opportunities, seasonality charts can help contextualize current price action and anticipate potential future market scenarios.

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Just when we thought tariff talk had gone quiet, it’s back on center stage. With the reciprocal tariff deadline landing this Wednesday, President Trump has mailed out notices that new duties will kick in on August 1. Countries such as Japan, South Korea, Malaysia, and Kazakhstan face a 25% levy, while a few others may see steeper rates.  

Wall Street didn’t take the news well. On Monday, the S&P 500 ($SPX) closed lower by 0.79%.  

Before the July 4 long weekend, the S&P 500 and Nasdaq Composite ($COMPQ) notched fresh record highs, buoyed by solid jobs data. But like migratory birds, tariffs circled back on Monday and pushed stocks lower almost across the board.  

Monday’s performance can be encapsulated by the StockCharts MarketCarpets screenshot below. It was pretty much red except for a few lonely green squares. 

FIGURE 1. STOCK MARKET’S PERFORMANCE ON MONDAY, JULY 7. Besides a few lonely green squares, the screen lit up red. Image source: StockCharts.com. For educational purposes.

Why Pullbacks Can Be Your Friend

Stock market pullbacks aren’t all bad. They give investors and traders a chance to go bargain hunting. A handy tool is the Market Movers panel in your StockCharts Dashboard. Check the “S&P 500 % Down” category to spot the 10 stocks in the index that had the largest % loss for the trading day. Then view the charts and see if any deserve a place in your ChartLists.

Two names that caught my eye: 

1. Tesla, Inc. (TSLA)
2. ON Semiconductor Corp. (ON) 

FIGURE 2. MARKET MOVERS PANEL FROM MONDAY, JULY 7. From this list, two stocks worth considering as “buy the dip” opportunities are TSLA and ON. Image source: StockCharts.com. For educational purposes.

Tesla, Inc. (TSLA): Sitting on the Fence

While it’s clear that politics helped knock TSLA down, the chart tells a fuller story. 

From the daily chart of TSLA below, it’s clear that the stock has seen some erratic movement recently. 

FIGURE 3. DAILY CHART OF TSLA’S STOCK PRICE. TSLA’s stock price has danced above and below its 200-day simple moving average, and momentum is relatively weak. Chart source: StockCharts.com. For educational purposes.

Since April, TSLA’s stock price looked like it was recovering after it broke out above its 200-day simple moving average (SMA). However, in early June it dipped below it and then went above it, and is now back below it. The June 23 high was below the end of May high. The relative strength index (RSI) and percentage price oscillator (PPO) indicate weakening momentum. The big question is where is TSLA going to find support? 

Watch three support levels on your chart. TSLA’s stock price has moved above the first support level. Look for momentum to pick up to confirm the upside move. If TSLA’s stock price doesn’t hold at this level and falls further towards the $270 or $220 levels, similar conditions would apply. However, a significant fall in price would weaken momentum significantly and would need stronger evidence to consider going long. 

ON Semiconductor (ON): Stalling at Resistance

ON has lagged its chip-making peers. Over the past year, ON Semiconductor has underperformed the VanEck Semiconductor ETF (SMH). ON supplies chips to automakers and manufacturers, so its fortunes rise and fall with car demand. 

The daily chart of ON below shows that since early April the stock price has recovered with a series of higher highs and higher lows. It is now facing resistance of its 200-day SMA, a resistance area that coincides with the February high and the early January gap down. Momentum looks like it’s rising as indicated by the slight rise in RSI and a potential bullish crossover in the PPO. 

FIGURE 4. DAILY CHART OF ON SEMICONDUCTOR. Since early April, ON has printed higher highs and higher lows. The stock price is now hovering around its 200-day SMA, and momentum seems to be gaining a little strength. Chart source: StockCharts.com. For educational purposes.

I would look for ON to clear $58 on strong volume and improving momentum before opening a long position.  

Closing Position

• Add price alerts in StockCharts at each support level (for TSLA) or resistance level (for ON).
• When an alert triggers, re-evaluate the chart to confirm if momentum is strong enough for a price reversal and upside follow-through. 

A short-term investment could be a better choice for TSLA since its price performance is correlated to Elon Musk’s involvement with the company. 

ON could be a steadier, longer-term investment if the stock price breaks above resistance. 

No matter what, decide in advance where you’ll place your stops. Then stick to your plan because discipline always wins.

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The past week has been relatively stable in terms of sector rankings, with no new entrants or exits from the top five. However, we’re seeing some interesting shifts within the rankings that warrant closer examination. Let’s dive into the details and see what the Relative Rotation Graphs (RRGs) are telling us about the current market dynamics.

Sector Rankings Shuffle

The top three sectors, technology, industrials, and communication services, remain firmly entrenched in their positions. But the real action is happening just below them. Financials climbed to the number four spot, consequently pushing utilities down to fifth place. This shift is significant, as it indicates a move towards more cyclical sectors in the top rankings.

These changes suggest a potential shift towards more economically sensitive and offensive sectors, which supports a bullish scenario or at least a move away from defensive positioning.

1. (1) Technology – (XLK)
2. (2) Industrials – (XLI)
3. (3) Communication Services – (XLC)
4. (5) Financials – (XLF)*
5. (4) Utilities – (XLU)*
6. (8) Materials – (XLB)*
7. (7) Consumer Staples – (XLP)
8. (6) Real-Estate – (XLRE)*
9. (10) Consumer Discretionary – (XLY)*
10. (9) Energy – (XLE)*
11. (11) Healthcare – (XLV)

Weekly RRG

The weekly Relative Rotation Graph continues to show strength in the technology sector within the leading quadrant. Industrials is also maintaining its position in the leading quadrant, with a very short tail, indicating a consistent relative uptrend.

Communication services, financials, and utilities are currently in the weakening quadrant. However, communication services have rebounded and appear to be making their way back towards the leading quadrant again.

Financials and utilities, on the other hand, are showing negative headings, with utilities displaying the weakest momentum (longest tail).

Daily RRG

Switching to the daily RRG, we get a more granular view of recent sector movements:

• Technology remains the strongest sector, with a high RS ratio and a short tail
• Communication services are rotating at a slightly negative heading but still within the leading quadrant
• Financials and industrials are showing promise in the improving quadrant
• Utilities continues to rotate within the lagging quadrant, confirming its weakness

The positioning of these sectors, particularly the strength of technology and improvements in financials and industrials, suggests a shift towards more cyclical and less defensive sectors in the market.

Technology

Tech continues its rally after breaking above the $240 resistance area. The raw RS line is also climbing, having broken out of its falling channel. This sector remains the market leader and shows no signs of slowing down.

Industrials

The industrial sector has cleared its overhead resistance and is pushing higher. Its RS line is putting in new highs, reflecting strong relative performance. The RRG lines remain in the leading quadrant and may be turning up again, a bullish sign.

Communication Services

Comms have broken above their resistance around 105. While still at the lower boundary of its rising RS channel, it’s starting to pick up steam. Both RRG lines are climbing, with RS momentum approaching the 100 level. A cross above that level would put it back in the leading quadrant.

Financials

Financials broke through overhead resistance last week, which is a significant positive development. It’s now above both horizontal resistance and its former support line. The relative strength line needs some work, but with the current price breakout, improvement seems likely in the near future.

Utilities

The weak link in the top five, utilities, remains range-bound. It’s still above support, but not by much. With the broader market rising, utilities’ sideways movement is causing its RS line to drop. The RRG lines are rolling over, and we may soon see this sector rotate into the lagging quadrant on the weekly RRG.

Portfolio Performance Update

I must admit, our portfolio is still underperforming. The current drawdown is a little over 8%, which isn’t ideal. However, this is the nature of trend-following strategies. We’re sticking with our approach through this period of underperformance, confident that historical results support our patience.

If market trends continue as they are, we should see more offensive sectors rotate into the top five. This shift, in turn, should help us overcome the current drawdown and eventually bring us ahead of the S&P again.

Remember, investing is a marathon, not a sprint. Periods of underperformance are normal and to be expected. The key is to stay disciplined and trust in your strategy.

#StayAlert and have a great week. –Julius

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I like to trade stocks that are relative leaders and belong to industry groups that are leaders as well. For the past 2-3 months, much has been written about and discussed with respect to semiconductors ($DJUSSC), software ($DJUSSW), electrical components & equipment ($DJUSEC), electronic equipment ($DJUSAI), recreational services ($DJUSRQ), travel & tourism ($DJUSTT), etc. These groups were laggards prior to showing absolute and relative strength and, many times, it’s the absolute strength (think breakout) that triggers money flows into that particular area of the market.

With that in mind, where’s one area that we could see upcoming strength during the summer months?

Computer Hardware

I know this group has been out of favor, but that seemed to change last week:

Its absolute downtrend seems to have been broken and we saw a glimpse of solid relative strength. Seasonality also leads me to believe that this run could very well just be getting started. Check this out:

Over the past 20 years, the DJUSCR has crushed the S&P 500 during the months of July and August. It’s easily been the group’s best two calendar months historically. These two months have consistently been great months for computer hardware stocks as they’ve each gained ground in roughly 3 out of every 4 years. Apple, Inc. (AAPL), the leading computer hardware stock, absolutely loves the months of July and August.

I expect last week’s rally to continue right up to AAPL’s earnings report on July 31st, and possibly beyond.

I’ll be featuring one other computer hardware stock in our FREE EB Digest newsletter on Monday morning that has CRUSHED the S&P 500 during July and August historically and it boasts one of the strongest charts in technology since the April low. If you’re not already an EB Digest subscriber, simply CLICK HERE to provide your name and email address. I’ll get that chart out to you first thing tomorrow morning!

Happy trading!

Tom

After a strong move in the week before this one, the Nifty spent the last five sessions largely consolidating in a very defined range. The markets traded with a weak underlying bias and lost ground gradually over the past few days; however, the drawdown remained quite measured and within the expected range. As the markets consolidated, the trading range got narrower. The Nifty moved in a 337-point range during the week. While the Index formed a near-similar high, it marked a much higher low. The volatility also retraced; the India VIX came off by 0.59% to 12.31. While showing no intention to trend higher, the headline Index closed with a net weekly loss of 176.80 points (-0.69%).

The Nifty has created an intermediate resistance zone between 25600 and 25650. A trending move on the upside would happen only if the Nifty is able to take out this zone on the upside convincingly. Until that happens, we will see the Nifty continuing to consolidate with 25100 acting as support. This is the prior resistance level, which is expected to act as support in case of any corrective retracement. So long as the Nifty is inside the 25000-25650 zone, it is unlikely to develop any sustainable directional bias on either side.

Friday was a trading holiday in the US. Because of this, we will not have any overnight cues to deal with on Monday. The Indian markets may see a stable and quiet start. The levels of 25650 and 25800 are likely to act as probable resistance points. Support levels come in at 25250 and 25000.

The weekly MACD is bullish and remains above its signal line. The weekly RSI is 62.40; it stays neutral and does not show any divergence against the price. No major formation was noticed on the candles.

The pattern analysis of the weekly chart reveals that after breaking above the rising trendline resistance and moving past the 25000-25150 zone, the Nifty consolidated after trending higher for four consecutive days. Over the past week, it gave up a portion of its gains and consolidated at higher levels. In the process, it has dragged its support level higher to 25000. As long as the Index remains above this point, the breakout and the resumption of the upmove observed in the preceding week remain valid and intact.

Overall, it is expected that the Nifty will remain within the 25000-25650 range over the coming week. The markets are unlikely to develop any directional bias unless they move past the 25650 level or violate the 25000 level. Sector rotation within the market is very much visible; it would be imperative to efficiently rotate sectors and stay invested in those that show improved relative strength and a promising technical setup. We are likely to see improved performance in the Auto, Energy, IT, and broader markets, among other sectors. It is also strongly recommended to protect profits here, where the stocks have run up hard. Any aggressive shorting should be avoided as long as the Nifty stays above the 25000 level. A cautiously positive approach is advised for the coming week.

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Sector Analysis for the coming week

In our look at Relative Rotation Graphs®, we compared various sectors against the CNX500 (NIFTY 500 Index), representing over 95% of the free-float market cap of all the listed stocks. 

Relative Rotation Graphs (RRG) show that the Nifty PSU Bank Index and the Midcap 100 Index are the only two groups that are inside the leading quadrant. They are likely to outperform the broader markets relatively.

The Nifty Infrastructure Index is experiencing an improvement in its relative momentum while it remains within the weakening quadrant. Additionally, the PSE, Nifty Bank, and the Financial Services Index are located within the weakening quadrant. While individual stock-specific performance may not be ruled out, the overall relative performance may take a backseat.

The Commodities Index and the Services Sector Index have rolled into the lagging quadrant. The Consumption, Pharma, and the FMCG Indices also continue to languish inside the lagging quadrant. The Metal Index is showing a sharp improvement in its relative momentum against the broader markets, while staying within the lagging quadrant.

The IT, Energy, Media, Realty, and Auto Indices are inside the Improving quadrant. They continue to rotate firmly while improving their relative performance against the broader Nifty 500 Index.

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Important Note: RRG charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

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Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

www.EquityResearch.asia | www.ChartWizard.ae