Argument for an “overbought” market over recent weeks has left many wondering or giving up. SPX remains extended and poised for a pause around 1500. Given stabilizing geopolitical risks, neutral Fed stance and non-outrageous oil prices –these factors have been favorable for the markets.
In terms of stock behavior, an impressive rally (new highs) with consensus bullish agreement. Complacency can be a near-term concern, as the pull/call ratio retraced from overly bearish levels in February. Since 2005, we continue to make new highs according to NASDAQ new highs/lows data. This clearly coincides with the behavior of the most groups as participation across the board. Therefore, a very bullish run and euphoric self fulfilling upside move.
Dollar: On the radar once again. Same message as the last few weeks. Remains oversold and poised for a short-term recovery.
Gold: Approaching April 20th highs of 691.40. A key resistance level while the all time highs remain at 725 reached last May. Expecting pullbacks in the near-term, even if Gold makes new highs for the year. Intermediate-term data appears stretched.
Yields: 10 year continues to trade in a close range between 4.60-4.80. Taking a step back, the uptrend remains intact since July lows of 4.00. Looking for further consolidation with an upside bias.
Crude: Near-term stretched with heavy resistance at $65 level. At this point, looking for a consolidation back to the $60 range.
Econ: Interpretation of markets remain positive but not clear if majority bulls understand or rank data outcomes towards decision making. Plenty of revised numbers, unclear interpretation and political related factors which are difficult to decipher. Federal Reserve developing a plan to control inflation.
GROUPS:
XBD: Broker/Dealer Index – recovering back to key resistance level of 259.23. Despite weak first quarter, the group has recovered previous losses and currently attempting to breakout. Watch resistance levels as indication of buyers or interest in this segment of the financials stocks.
In financials, REITS continue to make new highs and are elevated in the current cycle. It is difficult to deny the positive trend but from a cycle perspective, the group does not offer attractive entry points. Note: Dow Jones REIT index, has failed to recover back to February 2007 highs. It illustrates that buyers are staying on the sidelines and momentum is waning.
Stock Specific: vulnerable REITS: SPG: Watch the 115-110 range where momentum is slowing. BXP: Stalling 120-115 range with consistent low volume. HST: Slowing momentum with support level at $25. VNO: Attempting to breakdown around the 120 level.
Retail: RLX- Index pausing at current levels with two key resistance levels. First, 530 followed by 538.53 (Feb 20 highs). Failing to make new highs and displays vulnerability across the sector. Similar chart profile is seen in PMR (Dynamic Retail Portfolio). For example, KSS –sharp decline, SHLD- broke down, TJX –downtrend in tact.
Actionable Idea in the near-term
Family Dollar -FDO: Back to heavy resistance at $33. Double top to previous highs with weak momentum.
Groups/Stocks:
Technology: Few interesting charts: NVT-attempting to bottom, OTEX- uptrend intact, ULTI-positive uptrend since mid 2006, SMSI-consolidating around $14 and FLIR-on pullbacks.
Biotech: Continues to work and a strong run in the past two months. A stock specific play in general. Looking for pullbacks as opportunity to add. Stock speicifc names include: MYGN, ABI and TECH.
Healthcare Review: First quarter 2007, has seen a breakout in healthcare. Especially, pharma an area which has underperformed in recent market cycle. XLV- healthcare etf broke out recently. Chart attached below. (click to enlarge).
AMGN: Attempting to bottom while it remains oversold. Accumulate closer to $60.
BMY: Add on pullbacks closer to $29 range.
MRK: Among the top weights in the sector, MRK has established its leadership and that stands out.
Here are the top weights in the S&P healthcare.
| | Name | Symbol | Index Weight |
| 1 | 11.65% | ||
| 2 | 11.33% | ||
| 3 | 6.83% | ||
| 4 | 4.69% | ||
| 5 | 4.63% | ||
| 6 | 4.52% | ||
| 7 | 4.44% | ||
| 8 | 3.77% | ||
| 9 | 3.70% | ||
| 10 | 3.57% |
