iShares US Insurance ETF (IAK) & Sector Scopes Monthly Update (Feb 2022)

Although there continues to be significant volatility in individual stocks and sectors, particularly around earnings reports, and most notably in the social media group lately, some of the overall headwinds that had been knocking equities down lately appear to be easing a bit. Several of the major equity indices have spent the last few days clawing back some of their recent losses and moving back toward the middle of their recent trading ranges. So far this appears to be a relief rally driven by bargain hunting and short covering, possibly related to a slowing of corporate and economic news flow last week.

At this point it’s too early to say if we are out of the woods yet, particularly with last week’s higher than expected US wage inflation and this week’s gains in energy and grain prices, headlined by WTI crude oil trading above $90.00/bbl. The US 10-year treasury note yield peeked above 1.95% this week, indicating continued pressure on central banks to raise interest rates.

The coming week brings a number of economic reports, starting today with US consumer price inflation. More inflation reports, plus retail sales and housing numbers are also due in the coming days. Earnings season continues as well with results on the way from the mining, hotels, and technology sectors, plus some of the first results from retailers.

In this issue of Equity Leaders Weekly, we take out monthly look at sector scopes and at financials, particularly the insurance sector.

Through the recent market downdraft, which had a particular impact on growth/momentum plays like the technology and communications stocks in the NASDAQ along with small caps and cryptocurrencies, the financial service sector has held up relatively well. In the current SIA Charts Sector rankings report of 31 groups, financial sectors currently hold down three of the top ten positions. Individual stocks have also been showing strong relative performance, including credit card provider American Express (AXP), and insurer Principal Financial (PFG) which we mentioned in the February 9th and 10th issues of the Daily Stock Report.

With several seniors reporting results in the last few days, the insurance group has been attracting particular attention. Continuing a bullish Rising Channel of higher highs and higher lows, the iShares US Insurance ETF (IAK) has broken out to a new all-time high this month, completing a bullish Double Top pattern to signal the start of a new upleg.

Vertical and horizontal counts suggest potential upside resistance near $91.60 and $96.25, followed by the $100.00 round number. Initial support appears near $84.60 based on a 3-box reversal.

The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a snapshot of the bullish percent (percentage of stocks in a group on a bullish charting signal) for 31 industry groups. This provides us not only with a indication of market sentiment at a point in time, but also a visual way to evaluate changes in attitudes and capital flows between groups over time.Just as they were this time a month ago, the 31 sectors are well spread across the spectrum, which is indicative of an overall indecisive and sideways market. Just in the last day, the balance has shifted from center-left to center-right suggesting moderately improving market conditions.

The relatively strongest names on the right-hand side are similar to last month, including Energy, Financials (banks and insurance) and Consumer Staples (food and tobacco). The bullish percent for Construction has weakened dramatically, sending the sector to the left end of the page, with Electronics & Semiconductors, Conglomerates, and Media also struggling.