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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Basic Materials and Energy sectors returned to a leadership role today as the stock market looked to bounce from its recent doldrums. Both sectors advanced about 2%. However, it is Healthcare that has remained consistently strong. And in fact, it is Healthcare that has maintained a steadily strong score in Sabrient’s quantitative SectorCast model.
Overall, the market has been mired in a tug-of-war between the “sell in May” crowd and those who see promising signs for the economy but few good options other than stocks for investment. Today’s market action indicates that the “risk trade” is back in favor. Crude oil closed back above $100 (on a healthy 3% gain), and the dollar is looking like it wants to roll over after steadily rising for most of May.
Today, Dell (DELL) was strong and Hewlett Packard (HPQ) was weak following their earnings reports. This is an example of a great sector “pairs trade,” assuming you were long DELL and short HPQ.
This week, the Federal government hit its $14.29 trillion debt ceiling, which might be sooner than most observers expected. Treasury Secretary Timothy Geithner says he will tap into federal pension funds to keep from defaulting on obligations, and he will suspend investments in the civil service retirement and disability fund, which will effectively give Congress until August 2 to either raise the ceiling or risk defaults. Like the recent Federal Budget battle, there likely will be a last-minute compromise that includes both raising the debt ceiling and some commitment to budgetary concessions.
Looking at the SPY chart, we can see that 134 has served as both resistance and support for the past few months, and today it closed back above at $134.36. I have also drawn two rising support lines. The lower line connects the intraday lows since mid-March, and the upper line connects the closing lows. On Tuesday, SPY violated its 50-day moving average during the trading day, but closed above it. And then today it used the 50-day as a launching pad. Also, the 20-day moving average had been providing closing support throughout the month of May until this week, and today’s rally allowed the SPY to close back above it. Furthermore, RSI and MACD are trying to reverse the bearish crossovers that got…
