Healthcare stocks are leading the market higher for a change. The daily bars in Chart 1 show the Health Care SPDR (XLV) nearing a test of its recent highs after finding support near its 50-day moving average. The solid line overlaid on the chart plots a relative strength ratio for the sector and shows it underperforming the market since the spring. The ratio, however, has stabilized since September which suggests that some money is starting to flow back into the sector. All parts of the XLV are rising today. The strongest performance is coming from healthcare providers.

Chart 1

The daily bars in Chart 2 show the Dow Jones Health Care Providers Index challenging its February peak. A close above that level would constitute a bullish breakout for the group. Its relative strength line in the upper chart is turning up as well. Several individual stocks in the group have already set a new record, or are close to doing so.

Chart 2

The next three healthcare leaders have already reached new records. Chart 3 shows Molina Healthcare (MOH) breaking through its May/August highs to set a new record. Chart 4 shows Humana (HUM) setting a new record by exceeding its September high. Chart 5 shows Unitedhealth Group (UNH) in record territory as well. That's a good sign for the group and the healthcare sector. Anthem hasn't set a record yet, but may be close to doing so.

Chart 3

Chart 4

Chart 5

The weekly bars in Chart 6 show Anthem (ANTM) trading sideways since the start of 2019. But it's challenging its summer high near 300, and may be about to challenge its previous highs. Its 14-week RSI line in the upper box is at the highest level since the start of the year; and its weekly MACD lines (middle box) have turned positive. A decisive close above 300 would increase its odds for a new record.

Chart 6

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Editor's Note: This is an article that was originally published in John Murphy's Market Message on Friday, October 16th at 11:56am ET.

The Russell 2000 ETF (IWM) rose from the ashes in late September and surged above its summer highs with a double-digit advance. This is quite amazing considering that IWM closed below its 200-day SMA on 24-Sept and was seriously lagging less than a month ago. IWM is leading over the last few months, but still short of a new high and lagging SPY year-to-date. Note that SPY and QQQ have yet to take out there early September highs.

I missed the move in IWM because it was not on my radar after dipping below the 200-day SMA. SPY and QQQ, in contrast, were on my radar because they held well above their 200-day SMAs, formed picture-perfect falling wedges and broke out with gaps. SPY was featured in ChartWatchers on 2-October. IWM has returned to my radar because of the recent breakouts and outperformance.

The price relative gives us another reason to have IWM on our radar. This relative strength measure broke above its 200-day SMA for the first time since September 2018. The chart below shows the IWM:SPY ratio falling from July 2018 to March 2020 as small-caps seriously underperformed large-caps. IWM briefly outperformed with the bounce off the March lows (late March to early June), and then performed in-line as the ratio flattened the last few months.

The break above the 200-day is the first positive for small-cap relative performance in a long, long time. A follow through break above the resistance zone would show further relative strength in small-caps. This would be a momentous change. As such, I will be watching small-caps and some related industry group ETFs that may benefit from such a shift.

This week at TrendInvestorPro.com I revamped our All Weather ETF List (50) and added a Core+ ETF List (100). Designed for all market conditions, the All-Weather List is seriously curated with 37 stock-related ETFs and 13 alternatives. The Core+ list is designed to capture stock market beta with over 50 industry group ETFs covering different investment themes, including solar, green energy, gaming and esports. Each list is organized in a logical top-down manner to streamline the analysis process and is available to subscribers of TrendInvestPro.com. Click here to take your analysis to the next level.

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Tesla marked down the selling price of the Model 3 twice this week! In a humorous twist, $69,420 shows up as the list price. Good ol' $420. Funding secured. We almost miss all those bizarre tweets. Article continues below.

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News Bulletin

If you are interested, we have been planning a wonderful Technicians Day TODAY, Saturday October 17th. I will be opening the presentation, while Andrew Cardwell, nicknamed Dr. RSI by John Bollinger, will present some of his RSI reading strategies. Dwight Galusha, CMT and Barry Powley CFA, CMT will both present some current market thoughts based on their charts. Lastly, Tom McClellan of McClellan Oscillators will bring us some of his A/D work and some cycle patterns he is monitoring closely.

It is probably the fastest 5 hours in TA. Remarkably, the event is $25 Cdn or less than $20 US for the day. Wowza. But it is Saturday only!

Technicians Day

Thanks!

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Changes in the Car Charts

One of the reasons that we are starting to see some price reductions might be because some of the mainstream car manufacturers' sales are starting to respond, as they introduce new electric models and the charts are starting to break out.

Daimler/Mercedes (DDAIF)

Mercedes hit a new 52-week high last week and closed with a higher close this week. The stock has broken through a thirty-month downtrend and is improving. The relative strength (in purple) is not at new 52-week highs yet, but continues to outperform since the lows in March. The PPO is the highest wave in three years, suggesting some new momentum coming in. Definitely one to keep an eye on.

BMW (BMWYY)

BMW continues to find resistance at the downtrend line. It would not take much to push through, and this week it made the fourth attempt in a few months to do so. Like the Daimler chart above, the PPO wave is the highest in three years, suggesting some real momentum. The wide-ranging price action this week suggests some indecision. A break above $26 marks the 2020 highs and a break above $27.19 is a new 52-week high.

GM

General Motors closed at a post-COVID high this week. It was also an important support/resistance line on the chart. The PPO has surged to new 30-month highs, suggesting a new level of momentum. The relative strength (purple) has broken a one year downtrend line (not shown) and is now making higher highs. 6-month relative strength highs are a good place where the stock may be starting to attract attention of institutional investors.

Ford (F)

Ford is a timely chart, as they announced they were halting production on some electric cars due to fires while charging. What's a little heat in the kitchen? Regardless of the news, the stock chart made a couple of noteworthy changes. First of all, the downhill slope on the purple relative strength broke for the first time! While price has not broken the multi-year downtrend, the stock did break and close above an important support-resistance line. The PPO has started to surge up while above zero. Volume was increasing for the last two weeks. All little bullish clues.

Tesla (TSLA)

OK, back to Tesla. While I have trouble envisioning Tesla dropping hard with so many institutional investors riding Elon's marketing, the chart is starting to show a few subtle clues. The relative strength line is parabolic as TSLA moved up 1000% in one year. I usually try to find a method for helping with harvesting some profits, and both the parabolic RS line and the PPO line are being broken. While Tesla is still working higher and closing in the top of the range, it has also been at a resistance level for the last 4 of 6 weeks. That doesn't mean Tesla will fall, but, for a few institutional investors, its a great place to take some money and rebalance the portfolio. I think a few portfolio managers are on record as rebalancing some Tesla down to a more moderate weight in their portfolios.

So, while Tesla starts to adjust MSRP's downward and other car charts are trying to break out, this might be the inflection point for the electric engine becoming more mainstream. It hasn't been mainstream yet. Ford is looking to bring electric power out in the F150 truck.

So is Tesla in trouble? The momentum is starting to slow from a very high level, but that doesn't mean drop. It's too early to tell how much this changes, but it is definitely worth watching how institutional investors respond when there are 50 new models with better distribution networks competing against their lineup. It might not be the final top, but even Elon's rockets return to earth before the next takeoff.

Start your engines! This race is just beginning.

News Bulletin

If you are interested, we have been planning a wonderful Technicians Day TODAY, Saturday October 17th. I will be opening the presentation, while Andrew Cardwell, nicknamed Dr. RSI by John Bollinger, will present some of his RSI reading strategies. Dwight Galusha, CMT and Barry Powley CFA, CMT will both present some current market thoughts based on their charts. Lastly, Tom McClellan of McClellan Oscillators will bring us some of his A/D work and some cycle patterns he is monitoring closely.

It is probably the fastest 5 hours in TA. Remarkably, the event is $25 Cdn or less than $20 US for the day. Wowza. But it is Saturday only!

Technicians Day

Those who follow me know that I'm constantly monitoring the current leaders and watching for new leadership. It's one piece of technical analysis that helps in selecting our portfolio stocks. The best way to beat the benchmark S&P 500 is to follow the strength so long as it provides us consistent relative strength. My preference when evaluating sectors and industry groups is to review relative strength on a 3-year weekly chart. I think that time period is plenty long enough to ensure that we're not just seeing a quick bounce. I follow leading industry groups and their relative PPOs. Once they cross centerline resistance, they get my attention. If they can accelerate relative to the S&P 500, all the better.

Before I give you an industry group that's showing accelerating relative strength, I want you to check out a group that, not too long ago, began showing leadership with its relative PPO crossing into positive territory. It hasn't looked back since. Check out the Home Improvements group ($DJUSHI) vs. the benchmark S&P 500:

At the end of April, we saw a relative breakout and a relative PPO centerline crossover (first blue-dotted vertical line). That latter signal tells us that, on a relative basis, home improvement had begun to outperform the S&P 500. Two months later, we saw an absolute price breakout (second blue-dotted vertical line). Since that time, home improvement stocks have been a great area to invest/trade in. Lowes Companies (LOW), RH and Wayfair (W) are just 3 stocks in this space that have crushed the S&P 500. W has helped lead our portfolios at EarningsBeats.com and it's the simple relative strength evaluation that led to the group and to W.

Now, we have another industry group that appears to be following in the footsteps of home improvement.

Commercial Vehicles & Trucks ($DJUSHR)

The first thing to understand is that money is finally rotating to industrials (XLI). The best way to visualize this is to look at the same 3-year weekly chart of the XLI and compare its performance to the S&P 500:

Transportation stocks ($TRAN) broke out to all-time highs last week, which I believe will help the industrials begin to command more of Wall Street's money in Q4. If that's the case, then it certainly stands to reason that we should pay attention to commercial vehicles & trucks ($DJUSHR). Check out the recent improvement here:

The three blue-dotted vertical lines paint a picture quite similar to what we looked at above with home improvements. The DJUSHR is showing not only absolute strength, but also relative strength AND accelerating relative strength. We want to be considering investment in an area like this. In fact, there's a very good chance that this strength leads to at least one stock in this industry group being selected as part of one of our portfolios next month. I plan to feature my favorite stock in this group in our free EB Digest newsletter on Monday. It's currently in our Strong Earnings ChartList and our Raised Guidance ChartList. Its fundamentals are accelerating just as fast as its technicals. Interested in seeing which stock? Simply CLICK HERE and sign up for our EB Digest newsletter, published 3x per week. There's no credit card required and you may unsubscribe at any time.

Also, on Monday, October 19th at 4:30pm ET, we'll be announcing our first Model ETF Portfolio. We'll be applying many of the same rigid requirements that we've applied to our stock portfolios. These have been crushing the benchmark S&P 500, as you can see from our home page at www.earningsbeats.com:

If you'd like to see which ETFs are worthy of inclusion in our very first Model ETF Portfolio, alls it takes is a fully-refundable $7 30-day trial. Start your subscription today RIGHT HERE!

 

Happy trading!

Tom

I have heard rumblings of market participants beginning to "feel" bearish about the market as it pulled back this past week. That information can not only be gleaned from business news channels, but can also be pulled from polling data. Below is the American Association of Individual Investors' (AAII) poll. You can find the data or take the poll yourself at aaii.org. Granted, we only have about 35% of respondents bullish, but the interesting result is there are fewer and fewer bears. The poll is weekly and the current results are for last Wednesday (10/14).

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Rydex Asset Analysis is different. This measures sentiment based on tracking actual assets in bear funds, money markets and bull funds. They come from a group of mutual funds that used to be offered by a company called Rydex; now Guggenheim manages them. It's a "money where your mouth is" indicator. A look at the chart below says market participants are not getting bearish. Assets are growing in the bull funds and are steadily being pulled or lost from bear funds and money markets. Participants are clearly still bullish. Notice the Rydex Ratio is now very overbought. The chart is annotated with major market tops, so we can see that overbought conditions on the Rydex Ratio is very bearish.

Conclusion: Remember that sentiment is a contrarian indicator. When nearly all market participants, newspapers, magazines, news broadcasters, etc. are very bullish, that is when to expect a market reversal. Don't miss Monday's free DecisionPoint Trading Room! Information for registering and/or watching the recording from last Monday are below.

Technical Analysis is a windsock, not a crystal ball.

Happy Charting!

- Erin

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It's FREE!

***Click here to register for this recurring free DecisionPoint Trading Room!***

Did you miss the 10/12 trading room? Here is a link to the recording (password: qE58C9.E).

For best results, copy and paste the password to avoid typos.

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Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!

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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. 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.

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NOTE: The signal status reported herein is based upon mechanical trading model signals, specifically the DecisionPoint Trend Model. They define the implied bias of the price index based upon moving average relationships, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.

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