Sector Scopes April 2023 Update & S&P 500 Index (SPX.I)
The last week has generally been a constructive one for equity markets. The start to earnings season has been positive with US banks and regional banks reporting results that were significantly better than feared, confirming that the recent banking crisis has been contained. Results from other sectors have generally been in line with or better than expected, which has provided a supportive atmosphere for stocks.
On the economic side, China GDP beating expectations was also positive. Inflation data, however, particularly from the UK and Canada has been disappointing in that inflation has not fallen in those countries as quickly as had been hoped. This suggests that part of the recent accelerated dropoff in US inflation may be currency related. The US Dollar has been on the rebound in recent weeks, and the US 10-year treasury note yield has also been on the rise moving up toward 3.65% this week from a recent low near 3.25%.
The US Dollar rally combined with earnings season boosting investor confidence put a headwind in front of alternative currencies, sending gold back under $2,000/oz and Bitcoin back under $30,000. Commodities have also struggled this week with WTI Crude Oil rolling back down under $80.00/bbl.
Earnings reports dominate the news for the coming week with results due from a number of sectors including Big Tech, Big Oil, Big Pharma and Big Manufacturing out of the US and railroads, gold miners and energy producers in Canada. Headliners include: CN Rail on Monday, Microsoft, Alphabet, Visa, McDonalds, and UPS on Tuesday, Boeing, Canadian Pacific , Rogers and Meta Platforms on Wednesday.
Economic news for the coming week is mainly focused on the housing sectors plus Flash PMI numbers for the manufacturing and service sectors of several countries around the world are due on Friday.
In this week’s issue of Equity Leaders Weekly, we take our monthly look at Sector Scopes and at the S&P 500 approaching a potentially significant technical test.
Sector Scopes April 2023 Update
The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a visual snapshot of the Bullish Percent (percentage of stocks in the sector on a bullish signal) for 31 industry groups. This provides insight into which sectors are attracting capital, and which are not at a given point in time and also how capital flows and investor sentiment change over time.
A look at Sector Scopes over the last two months highlights the large swings in sentiment and changes in relative leadership that have occurred. On February 17th, most of the sectors were piled up on the right-hand side, indicative of an overbought market. On March 17th, most of the sectors were piled up on the left-hand side, indicative of a bearish to oversold market with particular weakness in Energy and Banks.
This month, the sectors are concentrated in the center-right of the table, indicative of a neutral to slightly bullish market. Energy and Insurance have staged particularly strong rightward (bullish) moves based on increasing bullish percents, with Utilities, Conglomerates and Computer Hardware on the right side. Manufacturing, Wholesale, and Electronics & Semiconductors are currently the relatively weakest sectors based on bullish percent.
S&P 500 Index (SPX.I)
After spending most of 2022 under distribution, the S&P 500 Index (SPX.I) successfully held above a long-term 45-degree uptrend line and bottomed out back in October. Since then, the benchmark US equity index has been steadily recovering lost ground, establishing a new uptrend of higher lows that held through the March banking crisis correction, and completing a series of bullish Double Top breakouts.
Moving into the heart of earnings season, the S&P 500 Index (SPX.I) has approached a key technical resistance test near 4,180, a level that has acted as both resistance and support over the last year. A close above 4,180 would complete another double top, signal the start of a new upleg and confirm that investors are responding favorably to corporate earnings and guidance. Should that occur, next potential upside resistance may appear near 4,310, based on previous column highs and lows, followed by 4,527 based on a horizontal count.
A failure to break through 4,180 would be signaled by a 3-box reversal into an O column with a close below 3,975. Should that occur, it would suggest growing concern about the health of the economy, fears of a possible recession and a loss of confidence in the outlook for corporate earnings. Next potential support after that appears near the 3,900 round number, then the long-term uptrend support line near 3,745.
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