Editor's Note: This article was originally published in John Murphy's Market Message on Friday, November 22nd at 12:01pm ET.

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Last Friday's message wrote about healthcare stocks going from one of the market's weakest sectors to one of the strongest. During the first eleven months of the year, healthcare was the market's second weakest sector (with only energy doing worse). Over the last month, healthcare moved up into second place (just behind technology). Over the last week, healthcare moved into first place; and is hitting a new record again today. Its chart reflects that improvement.

The daily bars in Chart 1 show the Health Care Sector SPDR (XLV) recently rising above its 2018 and 2019 highs to achieve a major bullish breakout. The solid gray area shows the recent improvement in its relative performance. After declining for most of the last year, the XLV/SPX ratio turned up during October and is now trading at the highest level in five months. As last Friday's message also pointed out, healthcare still remains one of the market's cheapest sectors. And one of its best values.

All of the subgroups within the XLV have gained ground over the last month. The three strongest are shown below. Chart 2 shows the Dow Jones Health Care Providers Index rising to the highest level in a year. Chart 3 shows the Dow Jones Medical Supplies Index nearing a test of its July peak. A close above that summer high would put the group at the highest level in a year as well. Chart 4 shows the Dow Jones Biotechnology Index already at a new 52-week high. All three appear to be in healthy uptrends. There appears to be a fourth group that may just be getting started.

 

Chart 1

Chart 2

Chart 3

Chart 4

 

Click here to read the full article in John Murphy's Market Message.

When I worked for a large asset management firm, we had a number of fantastic digital displays that allowed us to view stock charts on a massive scale. The size of the screens made the work of identifying trends and inflection points much easier - and also way more fun.

We often joked that, when a stock would be in an extended downtrend and the price reached the bottom of the monitor, the bottom edge of the display was not a legitimate support level. To phrase it as one of my early mentors once said, “Never confuse the bottom of the page with support!”.

Novice technical analysts will often get excited when a stock price is down, with the hope that they can identify “the bottom” and anticipate an inflection point before it happens. As exciting as that sounds, actually identifying a market bottom as it’s happening is incredibly difficult. Doing it once is coincidence. Doing it consistently across markets and cycles is downright impossible. This is why most long-term technical analysts (as well as quantitative models and hedge funds) employ more of a trend-following or “momentum” approach, with the goal of confirming when a new trend is in place and sticking with existing trends until signals start to suggest otherwise.

This brings me to the chart of Cisco Systems (CSCO), which remained in the mid-$40 range this week. That is down over 20% from its peak of just below $58 back in July.

After trading down to its 200-day moving average in August, CSCO gapped down to find support around $46, which lined up perfectly with a 61.8% Fibonacci level based on the 2019 rally.

The next three months saw Cisco bounce repeatedly off this key support level, with every new retest serving to solidify the importance of this line in the sand.

CSCO finally broke down through that resistance last week, with another gap down to around $44.50. This week saw further distribution, with most days seeing a close lower than the opening price.

At this point, we have a stock forming a consistent pattern of lower lows and lower highs - that is, a downtrend. The relative strength made another new low in recent weeks and continues to slope downward. The RSI is not yet oversold, suggesting there is plenty of potential for further downside.

To summarize, Cisco is in a downtrend with no real technical indication of anything changing soon. And to summarize that summarization, don’t confuse the bottom of the page with support.

RR#6,

Dave

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David Keller, CMT

Chief Market Strategist

StockCharts.com

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David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He is a Past President of the Chartered Market Technician (CMT) Association and most recently served as a Subject Matter Expert for Behavioral Finance. David was formerly a Managing Director of Research at Fidelity Investments in Boston as well as a technical analysis specialist for Bloomberg in New York. You can follow his thinking at MarketMisbehavior.com, where he explores the relationship between behavioral psychology and the financial markets.

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.

Over the past few months, we've seen some new market leadership emerge. If you're simply following the S&P 500, then you probably haven't noticed much difference. We consolidated a bit in August and September before then resuming the uptrend. It's the same old market, right? Wrong. Things have changed. Yes, the overall equity market has moved higher, but the leadership is changing and it's important to recognize it. In my last Trading Places blog article, I illustrated how defense stocks ($DJUSDN) emerged from the stock market ashes to become a leader once again earlier in 2019. It was a timely article, "Emerging Leadership: When Should We Trust An Emerging Group For Trading?".

We need to recognize this rotation. Bull markets thrive on rotation. We're in a secular bull market that, in my opinion, will likely last through the next decade. But the same stocks and the same sectors won't lead throughout. We need to watch for rotating leadership and, recently, we've seen that with financials (XLF). This sector has seen its SCTR score rise from the low 50s to 90 in just a little over a month. The XLF has surged on the heels of a very strong banking group ($DJUSBK), whose SCTR has risen from 50 to 90 in 5 weeks. Check out this banking industry chart:

Everything has improved here since mid-October. The absolute price action has seen a breakout; relative price action has seen the same. So now it's time to find the leaders. I rely on my Strong Earnings ChartList for that. If I pull that up and search for bank stocks, it yields the following results (in SCTR order):

JPM and PNC are two of my favorites in the space. They're large banks that are poised to capitalize from a strengthening economy and a widening yield spread. Here are their charts:

JPM:

PNC:

Both banks have clearly broken out on both an absolute and relative basis. Given the strength in banks, I'd expect to see both banks continue to perform extremely well and remain leaders, at least for the foreseeable future.

I'll be giving my 2020 view in the upcoming EarningsBeats.com-sponsored "Market Vision 2020" online financial conference scheduled for Saturday, January 4, 2020. We've already announced a stellar group of speakers for the event and, on Tuesday, a technical analysis legend will be announced as our Keynote Speaker. I'm really excited to be part of such a special online conference. To receive the latest news and updates (including a Black Friday special coming this week!), join our Market Vision 2020 newsletter for free by CLICKING HERE.

Happy trading!

Tom

Weekly RRG of cryptocurrencies vs. USD

On 8 November, StockCharts.com announced the arrival of cryptocurrency data in this ChartWatchers article. Regardless of what you think of cryptocurrencies, it's becoming increasingly hard to ignore them as the group of people that engage in trading them continues to grow.

Personally, I have no super-strong belief (yet) regarding the validity or sustainability of this emerging group of assets. I don't know if they already qualify as a new "asset class," but they do deserve our attention, at least every now and then.

What I do see/think is that cryptos are the almost perfect example of fear and greed, i.e. human emotions, at work in a trading environment.

Lacking any (real) fundamentals as we are used to from traditional companies, price is effectively the only thing that we can go by.

Cryptocurrencies are Perfectly Suited to Plot on RRG Charts

The fact that cryptocurrencies together make up a coherent group of assets makes them perfectly suitable for analysis using Relative Rotation Graphs.

Just like regular currencies, the "price of BTC" does not exist. The "price of the USD" also does not exist. Currencies are always expressed in another currency, and cryptocurrencies are no exception. Thus, we can talk about and look at charts of EUR/USD (the Euro expressed in USD) just as we can talk about and look at charts of BTC/USD (Bitcoin expressed in USD). We can also look at BTC/EUR or use any other currency as denominator, for that matter.

In technical terms, this means that currencies are already a relative (strength) line by themselves, one currency relative to the other.

You may have noticed that I have already written a few articles on how to use currencies on Relative Rotation Graphs. This article, written in 2016, explains how to use currencies on RRG charts.

With the arrival of crypto data, we can now go through the same setup as we have done for regular (fiat) currencies to plot them on Relative Rotation Graphs. At the moment, there are 15 different cryptocurrencies available on the site. The easiest way to find them is on Your Dashboard, located under the "crypto" tab in the "Market Overview" widget.

$ONE as the benchmark

The process to put cryptos on a Relative Rotation Graph is the same as for regular currencies: just put all the ticker symbols that you want to plot in the symbols box on the RRG page. As all tickers are expressed in USD, we need the benchmark symbol set to $ONE, as explained in the 2016 article. That setup will give you the RRG as shown at the top of this article.

You will notice that this universe is not as evenly spread out, as we usually see it when we graph sectors or stocks on an RRG. The reason for this is that these cryptocurrencies tend to move as a group vs. the USD. The only exception at the moment seems to be $LINKUSD, which makes it an interesting coin to look at individually.

Just like we can setup an RRG for the G10 currencies against the Euro, we can create an RRG for cryptocurrencies against BTC. As StockCharts only has the $###USD symbols available at the moment, we cannot setup a list with $###BTC tickers and use $ONE as the benchmark. Instead, we make $BTCUSD the benchmark symbol, giving us the RRG below:

Weekly RRG of Cryptocurrencies vs. BTC

Cryptocurrencies Exhibit All the Characteristics of Normal (Traded) Securities

When you use the animation feature for RRGs on StockCharts.com, you will see that cryptocurrencies, just like regular currencies, sectors, stocks, etc., will exhibit a rotational pattern of moving in and out of favor around a benchmark.

 

Just like on regular RRGs, we can switch to a daily timeframe (see chart below) to see a more granular rotation for (crypto)currencies. The characteristics and interpretation remain the same.

Daily RRG of Cryptocurrencies vs. USD

Chainlink - $LINKUSD

Daily chart of $LINKUSD

The Chainlink coin ($LINKUSD) already captured my attention on the weekly RRG, but it is also the only coin traveling against the pack on the daily RRG. LINK is inside weakening at the moment, but is already moving back up on the JdK RS-Momentum scale. This suggests a better performance for LINK over USD in the coming weeks.

Looking at the price chart, the overhead resistance in the area around $3.10 is providing resistance, but the lows since mid-October all came in at higher levels, suggesting that demand is strong and building up. Once the overhead supply around $3.10 can be cleared, much more upside potential is in the cards.

Note: Since this article was originally posted in the RRG blog earlier this week, $LINKUSD has dropped back below the rising trend line. This weakened the short-term outlook somewhat as that overhead resistance appears to be stronger than expected. In relative terms vs. USD and BTC, LINK remains one of the more interesting coins to watch for more upside.

-Julius

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My regular blog is the RRG Charts blog. If you would like to receive a notification when a new article is published there, simply "Subscribe" with your email address.

Julius de Kempenaer

Senior Technical Analyst, StockCharts.com

Creator, Relative Rotation Graphs

Founder, RRG Research

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Feedback, comments or questions are welcome at Juliusdk@stockcharts.com. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

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RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

The University of Michigan’s Index of Consumer Sentiment hit its 4th straight monthly gain with a 96.8 level that was above estimates. Driven by an increasingly optimistic spending outlook among Americans amid a backdrop of record highs in the stock market and reduced trade tensions, the news has economists raising their consumer spending outlook for the remainder of the year.

While this is good news for many consumer driven companies, a quick look at the sector chart below reveals that discretionary spending is being very selective. This is particularly true among retailers where a handful of leaders in select areas are outperforming while many others are languishing.

DAILY CHART OF CONSUMER DISCRETIONARY SECTOR

Overall within Retailers, it's been those companies that have been able to enhance the customer experience while successfully adding to their brick and mortar revenue streams that are outperforming the markets.

One of this week’s bigger winners – Target (TGT) saw shares surge 14% after reporting better than expected demand for its apparel. The company has spent billions building out their private label while partnering with top designers and the response has been enthusiastic.

The company also opened smaller stores in college towns and urban areas to lure customers away from rivals. Their same day delivery service as well as heavy renovations at all locations is bringing people in. As is their introduction of Disney stores in 24 locations. Using last quarter’s equally impressive response to strong earnings as a guide, there can easily be more upside for the stock.

DAILY CHART OF TARGET CORP. (TGT)

Next up is Carvana (CVNA) which is a leading e-commerce platform for buying and selling used cars. The company has created a unique and much less time-consuming experience for their customers that has increased sales and while CVNA has not yet recorded earnings, management guided revenues higher for this year and next.

By going online, Carvana customers can shop over 15,000 vehicles in as little as 5 minutes. They can transact financing, purchasing and vehicle trade ins online as well. The company will deliver your car the next day while also picking up any trade-in, all with generous return policies if you’re not pleased. The stock broke out of a 10-week base on volume this week and can be purchased on a pullback to its 10 day moving average.

DAILY CHART OF CARVANA (CVNA)

Formerly known as Restoration Hardware, RH (RH) is a high-end furniture and accessories store that has reshaped the furniture industry. With their plush store settings in high-end locations, the company has incorporated shopping with fine dining as select locations have restaurants surrounded by RH’s designer goods.

Other initiatives have set this company apart such as their launch several years ago of a membership program that offered first dibs to new designer releases as well as healthy discounts. And while the announcement of Warren Buffets recent 6.7% stake in the company pushed the stock out of a 1 month base, the stock already had upward momentum following a series of strong quarterly earnings results. The stock is in a buy zone following this week’s breakout.

DAILY CHART OF RH (RH)

During my many years of working with William O'Neil, I was repeatedly reminded that innovative companies that solved a problem or created a new way of providing an existing service could often move on to become big winners - provided management executed properly. With Target's delivery of designer apparel at a reduced cost, Carvana's effortless auto purchasing process and RH's luxury furniture sales by way of glossy catalogues, each of these well managed companies easily fits the leadership mold with the primary driver being earnings and sales that is the result of their innovative actions.

For those who would like to be alerted to top-performing, leadership names as they're poised to take off, I urge you to take a look at my bi-weekly MEM Edge Report. By accessing this link here, you can trial this insightful report for 4 weeks at a nominal rate of $7.00

Don't forget about the upcoming Vision 20/20 online conference. The event will be headlined by other top Stockcharts.com contributors and this Tuesday a a technical analysis legend will be announced as our Keynote Speaker. I'm really excited to be part of such a special online conference. To receive the latest news and updates (including a Black Friday special coming this week!), join our Market Vision 2020 newsletter for free by CLICKING HERE.