Equity, currency and commodity markets have been sending mixed signals over the last week indicating indecision among investors. On the encouraging side, the bounce from oversold conditions by equity markets that started in late May has continued to gain some traction and a number of Country ETF and Sector ETFs have gone on low pole warnings and bullish breakouts. Also, equity markets appear to have stopped going down on bad news, a sign that significant negativity has already been priced in
On the disappointing side, equity market gains have been tentative, major indices remain below recent breakdown points and follow-through from the initial bounces has been limited. So far it seems that recent gains have come more from the bears taking a break then the bulls gaining much traction. A continuing lack of enthusiasm for risk can be seen from the continuing weakness in cryptocurrencies.
A drought of business news in the early part of this week has also helped to push equity markets into neutral. Earnings season is over and the economic calendar has been relatively light so far this week. Economic news picks up again, however, starting today. The main focus of the coming week is on central bank meetings and how much pressure inflation is putting on them to continue raising rates.
So far this month, The Bank of Canada (as was expected) and the Reserve Bank of Australia (a hawkish surprise) have both raised their benchmark interest rates by 0.50% and continued Quantitative Tightening. Today the European Central Bank is meeting with investors looking for hints on when rate hikes may start in Europe and how many times the ECB could raise rates this year. Next Wednesday the Fed is meeting with investors widely expecting another 0.50% rate hike. Perhaps more importantly, investors may look to the statement and the economic/interest rate member projections for hints on whether the Fed may hike toward 2.50% and then stop or if members are expecting hikes to continue for longer or to a higher level.
Other notable economic announcements this week that could influence sentiment include consumer price inflation reports for the US and China, plus Canadian employment, all on Friday followed by US producer prices and retail sales reports for the US and China next Tuesday-Wednesday. A week from today, the Bank of England, Bank of Japan and Swiss National Bank are also holding monetary policy meetings.
In this issue of Equity Leaders Weekly, we take our monthly look at Sector Scopes and at alternative energy stocks.
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.What a difference a month has made. In early May, nearly all of the sectors were piled up on the left hand side of the page, a sign of a falling and potentially oversold market. Over the last several weeks, nearly all sectors have shifted rightward, a sign of increasing bullishness. Currently the majority of groups are in the center-right part of the table (50%-80%), a sign of a rising but not overbought market. Energy and Utilities remain at the rightmost side but have been joined by Banks and Electronics & Semiconductors. Other sectors showing significant improvement include Computer Software and Leisure.
After soaring through the back half of 2020, the alternative “Green” energy sector peaked in January of 2021 and sold off through all of last year and much of this year so far as investors retreated from “Growth/Momentum” sectors. It appears, however, that sentiment toward the alternative energy group has started to improve. With oil & gas prices remaining high, green energy has started to look more attractive in general, and the potential for improvement on the regulatory side related to easing tariffs in the US has sparked renewed interest in the sector once again, particularly solar stocks. The iShares Global Clean Energy ETF (ICLN) has surged upward in recent days, retaking $20.00 and completing a bullish Double Top pattern. It would need to clear its recent high near $22.10, which coincides with a horizontal count, in order to confirm the start of a new uptrend. Should that occur, next potential resistance appears near $23.70 based on previous column highs. Initial support appears near $20.00 where a round number and a 3-box reversal converge.
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