3 Sectors Showing Signs of Strength – Weekly Market Outlook

It was only a 2.1% gain for the week, but the numbers don’t do it justice. From the low hit on Tuesday’s open, the market gained 7.5%, undoing a big chunk of the 6.5% loss taken three weeks ago (two weeks ago was basically a wash). Needless to say, the rebound calls into question all those ‘certain’ calls that the economy – as well as the market – is on the verge of a complete collapse.

We’ll look at the market aspects of this bull/bear tug-of-war in a second, right after a quick recap of last week’s economic numbers.

Economic Data

It was a loaded week last week, with what could be considered more bad news than good on the economic front.

The biggest news of all, of course, centered around jobs (or lack thereof), and it was a bit of a mixed message. The good news is, the unemployment rate didn’t creep any higher and remains at 9.1%. And the economy created more jobs last month that most people expected; ADP says 91K new payrolls were added (versus expectations of 45K), while the government says 103K private payrolls were added (versus expectations of 60K).

The bad news is, that’s still not enough to fully absorb those being laid off or graduating from college.  The number of new unemployment claims is still annoyingly high at 401K last week, with 3.7 million ongoing claims. There’s been no progress from either for weeks.

There were several other key data points posted last week, but none all that hard-hitting primarily because it was August’s numbers. A lot has happened – for better and worse – that could have turned those numbers around.

For instance, August’s Factory Orders slumped 0.2% while they swelled 2.1% in July. Consumer credit (revolving plus loans) contracted $9.5 billion in August – versus an expected $7.0 billion increase – after increasing for almost every month over the past year an a half. Just a bad month, or is it the beginning of something troubling?

That’s just it – it’s too soon to call, though the market seems to have assumed the worst (though such an over-reaction sets up a huge rebound if things aren’t really as bad as they feel … a distinct possibility).

Anyway, the raw numbers and the rest of the data are below.

Economic Calendar

The coming week is less eventful in terms of data, and doesn’t even get started until Tuesday because of Monday being a Federal holiday. And really, nothing interesting happens until Friday aside from Thursday’s unemployment claims data (which has gotten a little repetitive at this point).

Friday’s fireworks will be retail sales, and the analysts are looking for yet-another big gain; they’ve been up every month but one all year long, and should grow again for September (up 0.6% with cars, and up 0.3% without cars). It’s one of the few data points that fifers a glimmer of hope for the economy.

Yet, Americans clearly saw more than a glimmer of hope last week, judging from investors’ buying effort. Of course, most of that renewed buying interest stemmed from relief over Greece.

Stock Market

As was said above, the market gained 2.1% last week, but the week-to-week gain doesn’t do justice to how strong the market actually was after Monday… a 7.5% intra-week swing, and that takes into account the small pullback from Friday.

Of course, that small dip can’t be taken lightly. In fact, it IS cause for alarm.

While the slowing on Friday could quickly be chalked up to some profit-taking after a huge swing, take a close look at the chart of the S&P 500 (SPX) (SPY) below. That small pullback also just happened to occur at some key resistance levels observed over the past two months. And let’s face it… the market’s not been following through on its rally efforts of late.

To be specific, the SPX was unable to close above its 20-day moving average (blue) line, once again. And Friday’s almost-retest of the 50-day moving average line (purple) led to the same result it did back in mid-September.

Also, as nice as it would be to be able to (legitimately) get excited again, there’s the blaring reality that the market just made a lower low and so far a lower high. That’s still a bigger-picture downtrend by anybody’s definition, and the market has a lot of damage control to do just to get back into the mere consolidation mode it was in for the better part of August and September.

One upside: The volume behind last week’s three bullish days was pretty strong, while the selling volume on recent bearish days has (mostly) been on the weak side.

And the CBOE Volatility Index (VIX) (VXX) (VXZ)? Yes, it’s got more room to fall before hitting a floor around 30.3, as well as the lower 20-day Bollinger band right at the same level, which would/should be bullish for stocks.

The story here is the same as the market’s though – the Volatility Index has just been bouncing around for several weeks, not really going anywhere. Even if the VIX does manage to make it back to 30.3, so what? That still won’t be good enough to carry the S&P 500 beyond a whole mess of hurdles between 1165 and 1223.

Bottom line? The bears still have enough control here to side with them rather than being bullish. The market IS undervalued, and the media probably HAS forecasted a recession that isn’t coming.

But, if investors don’t believe it and instead take the bearish forecasts at face value as they have so far), the market’s value is irrelevant – the bigger picture momentum is still working against the market. We’ll assume the worst/bearish until we have a convincing technical reason not to… and that’ll take a lot of work from here.

SPX & VIX Daily Chart

As usual, we’ll look at the weekly chart of the S&P 500 just to see if something else jumps out. And, it does.

For one thing last week’s chart pattern is a pretty clear hammer, where the open and close are in the upper end of the range, with a deep – and usually new – low. These are generally bullish, indicating a changing of the tide, and they’re even more bullish when they come at the end of fairy long pullbacks.

That’s not to say we trust this hammer-shaped bar is a full-blown sign of a rebound, but it is worth watching for follow-through by the end of this week.

It’s also stunning, in a bullish way, just how over-extended the VIX is now. As was said, that doesn’t matter until and unless the 30.3 floor is broken, but that gun’s definitely loaded.

The biggest thing of all though? That’s volume. We saw more volume behind last week’s gain than we’ve seen in any week since the 2nd week of August when the meltdown was totally out of control. This is another bullish hint in that the bulls truly are starting to put their money where their mouth is. Now let’s see if it lasts.

SPX & VIX Weekly Chart

Hot Industries

While we generally take a comparative look at all the major market sectors here, this week we’re going to shake things up a bit and point out some of the better-developed uptrends from individual industries (and there aren’t many).

That’s not to imply any of them will survive market-wide weakness, but if any group can, these look best-positioned to do so. In most cases, it’s a group coming out of a very oversold condition, or a chart that’s managing to take two steps forward for every one step back.

These are S&P sector groupings, but one could look at ETFs that correlate somewhat with these groups — as always though, check the holdings of the ETF to see if it targets the specific groups we’ve noted below. 

for Department Stores, SPDR Retail (XRT),
for Human Resources, perhaps Economic Cycle ETFs
for Household Products, SPDR Consumer Staples (XLP)

Department Stores

Human Resources/Staffing

Personal Products


Trade Well,

Price Headley