The long-awaited arrival of earnings season has brought a series of yawns from the street so far. Although initial results have been coming in stronger than expected overall, and banks have sharply scaled back their loan loss provision increases, stocks have started to backslide this week. This action suggests that with equities having run up over the summer, high expectations for the quarter have already been built into valuations and some investors may be starting to take profits against the news. Meanwhile, fear indicators like the VIX and defensive havens like gold, silver and the Japanese Yen have started to creep upward within established trading ranges. No breakouts yet, but these moves suggest that investor bullishness might be easing a bit. The US election is now less than three weeks away and US politicians also continue to haggle over stimulus, so it’s possible that capital flows may be starting to reflect increasing political uncertainty. Earnings remain the primary focus for investors for the coming week with results expected to broaden out from Financials into Industrials (particularly railroads) and Consumer Products (both Staples and Discretionary). Earnings season also gets going in Canada next week. Investors may look for indications of how strong the reopening rebound has been for different companies and sectors and also at guidance for signs of whether the rebound is sustainable or slowing. In this week’s issue of Equity Leaders Weekly, we look at recent moves in the pharmaceuticals and real estate sectors as indicators of capital rotation between industry groups
Big Pharma spent 2018 and 2019 stuck in a rut with the iShares US Pharmaceuticals ETF (IHE) trading in a sideways range between $135.00 and $165.00. Earlier this year, the sector sold off and rebounded with the market but recently, the sector has staged a major breakout to the upside. Last month, the sector broke through $165.00, then paused for a few weeks. This month, accumulation has accelerated with the shares breaking out to a new high plus completing a bullish Double Top, then a bullish Spread Double Top, all combining to confirm the start of a new advance. Next potential resistance tests on trend appear near $175.00, $185.00, and $192.50. Initial support appears in the $164.25 to $165.00 area where a 3-box reversal and a retest of the top of the old range converge.In addition to broader market moves and news drivers such as earnings reports, the pharmaceuticals sector has the potential to be particularly active in the coming weeks. First, with the second wave of COVID upon us and a lot of talk in the press about potential treatments and vaccines may keep the sector top of mind with investors. Second, we are into US election season where health care and drug costs often become a point of contention between the parties.
In the September 17th issue of Equity Leaders Weekly, we highlighted early signs of new interest in the US Real Estate sector. This week in our sector review we noted multiple Real Estate sector ETFs have broken out to the upside (REITs and homebuilders), and most interestingly, new enthusiasm toward the sector among investors has spread into Canada as well.The S&P/TSX Capped Real Estate Index (TTRE.I) has broken through the top of a 265-280 trading range this week, completing a bullish Quadruple Top pattern to end a consolidation phase and signal the start of a new upleg. Next potential resistance tests on trend appears at the June high near 293, 300 round number, and then 308 where previous highs converge with a downtrend line. Initial support appears near 271 based on a 3-box reversal.
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