In this addition of Bull or Bear, we will examine the tailwinds boosting equity prices in the major indices. At the moment, its hard to find reasons to get uber bearish, despite the relentless string of all time highs. The S&P500 and Nasdaq are both working on day 6, without a red candle. This is very impressive. The last time the S&P500 strung together 8 consecutive closes, without a corresponding close below the low of the previous day was December 2016. With this in mind the red arrow at Point “B” and Point “C” are equidistant. If we do exceed the 8 day run in December, there will need to be a catalyst to propel the ETF along its way. Let’s examine these criteria:
TICK cumulative suggests institutions continue to buy in “real time”. Let me emphasize that this sentiment indicator is NOT lagging. What you see is what you get. In addition, MACD has crossed and moving higher, while RSI (14) is embedded. Remember, the very nature of bound indicators means they can stay embedded for long periods of time, when strength (capital flow) remains intense. We call this “RSI muscle.” Just because its at 70 or above, does not automatically mean we have to turn down.
Reflecting on catalysts for a moment, we turn to sectors. We will examine the propellant fueling this recent move. Bullish and bearish thoughts are discussed.
- IYR is above the 9/20ema and 200ma. It produced a wick at lows yesterday. Higher interest rates will affect subsequent performance.
- IYT is overbought at a triple top. Watch this sector for rejection or breakout.
- XLB is producing higher lows and will test a higher high shortly if prices remain above the 9/20ema. RSI is > 50.
- XLE closed above its 9/20ema and appears to be testing a trend break, as RSI continues its upward slope. We were waiting for this to happen.
- XLF broke out to fresh 52 week highs on Tuesday. Banks, MS, GS, OZRK, WAL among many others from the IBD50 list are strong across the board, in addition to insurance and broker dealers. SCHW from the weekend video news letter suggests continuation, as it cruises back above the 9/20ema this week.
- XLI broke out to fresh 52 week highs on Monday. Dow Theory says transports IYT and industrials XLI work in tandem. Both are bullish.
- XLK will assist both indices, as each have substantial weight in technology. Look for this sector to continue its very bullish price action, contained between standard deviation 1 and 2 Bollinger Bands. This is quite bullish. RSI is showing “muscle.”
- XLV is uber bullish, breaking higher yesterday. As a side note, David Tepper announced that his Appaloosa fund has acquired $1 billion dollars in four pharmaceutical stocks. He mentioned PFE, MYL, MRK and TEVA. XBI/IBB/LABU are also part of the bigger health care sector. Biotech stocks are bullish as well.
- XLY consumer discretionary produced 3 white soldiers last week, as we mentioned in the weekend video news letter. Monday produced a spinning top, while Tuesday saw price action resume its upward path.
COMPQ shows a similar look, though we would suggest technology stocks are boosting the Nasdaq returns, as we press to ever higher ATH.
While we have been legging out of positions in our 401(k) over the past week, we do have funds remaining in VTSNX (international/emerging markets mix) and TRBCX (Blue chip growth). The thinking here is simple. The indices are up substantially since the November election. VINIX and DODGX were taken on November 9 and 10, respectively. FFFDX was taken on January 3rd. FFFDX is a more conservative fund, so those funds will likely be utilized for a sweep to TRBCX on the next 2% pullback to the 9/20ema that holds.
In addition, our 401(k) positions were up +4.20% YTD, as of Tuesday, so we felt it was prudent to trim some of our exposure as the indices go vertical (SPY).
Banks continue higher, as previously mentioned. As a result we are looking at Bank of California for a covered call position. Note we are flagging at the June 2016 pivot high and see support as the large VBP bands at 18.00 as well as the 200ma. We are bullish the stock, so we will likely sell our calls at one strike OTM, if everything pans out.
BANC 15 minute chart should be monitored when considering this”income” producing position. Said another way, this is not a swing trade, it is an income strategy. We are considering a position to produce monthly income as discussed in the Tuesday post.
Below are the covered call positions from a scan taken yesterday. Downside protection for BANC is 4.7% so we can rest easy, while the stock flags.
Good luck today,
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