Stocks Keep Climbing as One-Time Bears Chase the Breakout

Stocks Keep Climbing as One-Time Bears Chase the Breakout

Stocks continued their breakout to new highs as money streams back into the market.

The S&P 500 rose 0.9 percent between Friday, November 8, and Friday, November 15. The index is up for sixth straight weeks, its longest winning streak in two years. The Nasdaq-100 and Dow Jones Industrial Average also hit new records.

Optimism about a trade deal between the U.S. and China certainly helped, but the real impetus seems to be a sharp swing in sentiment. Remember that barely a month ago various fear metrics hit their highest levels in several years. Now that’s moved in the opposite direction.

For example, just 21 percent of respondents in the American Association of Individual Investors’ sentiment poll were bullish on October 3. Last week that number had almost doubled to 41 percent.

S&P 500 with select simple (SMA) and exponential moving averages (EMA).
S&P 500 with select simple (SMA) and exponential moving averages (EMA).

The result is unusual price action, with strength rotating between sectors as money flows into the market. Last week it fueled in rebounds for safe-havens like utilities and real-estate investment trusts, which crashed the previous week.

Health Care Breaks Out

The real standout was health care, up 2.5 percent. The sector was shunned for most of 2019 because of political risk and debt worries. But now those fears are melting away and value hunters are piling in.

Homebuilders also outperformed as momentum buyers returned to one of the year’s top-performing industries.

Energy led to the downside after a sharp bounce the previous week. Profit-takers also hammered Chinese stocks — especially after the Asian country reported another triple-miss on key economic numbers: industrial production, capital investment and retail sales.

U.S. data was poor as industrial production and jobless claims lagged estimates. But that did little to change perceptions of the economy. Federal Reserve Chairman Jerome Powell helped by saying he saw no “day of reckoning” or major bubbles. He also reiterated that interest rates probably won’t change again soon.

SPDR Health Care ETF (XLV) showing breakout and select moving averages.

Disney and DXC

Another big story last week was the rollout of Walt Disney’s (DIS) streaming Disney+ service. More than 10 million people signed up in the first two days, crushing expectations and sending the media stock to new record highs.

DXC Technology (DXC) had the biggest gain in the S&P 500 last week, up 24 percent, after its new CEO outlined a turnaround plan. It involves divesting assets from the IT firm, stitched together from the old Computer Sciences and parts of Hewlett-Packard Enterprise (HPE).

Rockwell Automation (ROK) and Applied Materials (AMAT) followed with gains of 13 percent and 11 percent, respectively. Both had strong quarterly results.

CenterPoint Energy (CNP) had the biggest drop in the S&P 500, down 11 percent. Investors worried that utility regulators in Texas will issue an unfavorable ruling on electricity rates. (AMZN) was another noteworthy laggard, shedding almost 3 percent of its value. The e-commerce giant continues to struggle with margin pressures, even as Wal-Mart Stores (WMT) flies to new records. Jeff Bezos has gone more than a year without being able to brag about a new 52-week high.

Housing on the Agenda

This week’s agenda focuses on housing and retailer earnings. NAHB’s homebuilder-sentiment index gets the ball rolling this morning.

Tomorrow features housing starts and building permits, plus quarterly results from Home Depot (HD), TJX (TJX) and Kohl’s (KSS).

Oil inventories and minutes from the last Fed meeting follow on Wednesday. Lowe’s (LOW), Target (TGT) and L Brands (LB) report as well.

Thursday brings jobless claims, the Philadelphia Fed’s manufacturing index and existing-home sales. There are also earnings from Macy’s (M), Gap (GPS), Nordstrom (JWN), Ross Stores (ROST), Intuit (INTU) and Splunk (SPLK).

The week concludes Friday morning with results from Foot Locker (FL) and JM Smucker (SJM).

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.