The last week has seen a significant shift in sentiment toward different sectors with Equity markets. Joe Biden’s election victory and a gridlocked Congress was quickly overtaken by positive COVID vaccine and treatment news. The potential for a wider economic reopening sparked a flow of capital out of stocks which had benefitted in recent months from the “work from home / stay at home” economy, particularly in the internet, communications, online retailing and shipping sectors, and a surge of bargain hunting in sectors which were still being crushed by COVID restrictions, including airlines, hotels, casinos, cruise lines, energy, and others. This change in sector sentiment played out across US indices creating a significant divergence in performance. Some of the narrower focused indices struggled including the technology and communications sensitive NASDAQ Composite underperformed, and the mega-cap sensitive S&P 100 Index, went sideways. Meanwhile, broader based indices, such as the NYSE Composite soared, the Dow Transports broke out to a new all-time high, and the small/mid cap indices including the Russell 2000, S&P 400 Mid Cap and S&P 600 Small Cap, all surged forward. The coming week may give us a better idea of whether this action is the start of a sustained shift in sentiment into a broadly-based market advance, or a knee-jerk reaction to news. The focus for corporate and economic news turns to retail sales reports and retailer earnings in the coming days, with developments related to the US election (Biden team transition comments and Trump legal challenges) and COVID Wave 2 (whether the US could follow Europe into another round of rollbacks and/or full lockdowns this winter) also on investors’ radar screens. In this week’s issue of Equity Leaders Weekly, we look at how investor sentiment toward the technology and banking sectors has changed recently as examples of a wider shift in investor attitudes.
Benefitting from its sensitivity to “stay at home” and momentum companies, the technology sector, represented by the iShares US Technology ETF (IYW) roared up out of the March market bottom, breaking out to a new all-time high by June and soaring through the summer. Since peaking in early September, however, upward momentum for the technology sector has stalled. A symmetrical triangle of higher lows and lower highs has emerged over the last two months, which is indicative of a period of consolidation. Recent action in IYW has been somewhat troublesome. Last week’s bullish Double Top breakout went nowhere with the ETF price peaking at a lower high and rolling down into a column of Os this week at a time when many market sectors were soaring, suggesting that investors may be increasingly taking profits in tech to and redeploying their capital elsewhere. Initial downside support levels for IYW appear at previous column lows near $291.65 and $283.05. Initial upside resistance
Bank stocks on both sides of the border had been struggling to keep up with overall market gains, held back by their lending exposure across the economy both recovering and still-struggling sectors. In their last round of earnings reports, many of the large US Banks dramatically slowed the growth of their loan loss provisions and a few even started to cut them, an encouraging sign and perhaps a portent of things to come when Canadian banks report results in a few weeks, but investors remained cautious toward the sector. Investor interest in banks has increased dramatically over the last week as the group has benefitted from this week’s positive COVID vaccine and treatment developments which sparked a resurgence in sectors which could benefit from a vaccine enabling the economy to make further strides on the road back to normalcy. The BMO Equal Weight Banks ETF (ZEB.TO), ended and reversed a downswing this week, blasting through $26.60 to complete a bullish Spread Double Top pattern and signal the start of a new upleg. Next potential upside resistance on trend appears at previous column highs near $28.00, then $28.55 based on a horizontal count, and the previous peak near $29.40. Initial support appears near $25.85 based on a 3-box reversal. The BMO Equal Weight US Banks Index (ZBK.TO) staged a similar breakout this week.
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