Chart Advisor: S&P 500 Gains and Losses Today: Pharma Stocks Fall After Pfizer, Merck Reports

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ Dow Jones Transportation Average Achieves Record Highs

2/ Materials Break Out

3/ Does New Leadership Have Enough Gas?

4/ The Dollar Pumps the Brakes

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ Dow Jones Transportation Average Achieves Record Highs

The Dow Jones Transportation Average (DJTA) is officially the first major U.S. index to achieve new all-time highs during the current cycle.

Here’s a look at the monthly chart:

After bottoming out in September last year, transports built a constructive base. Fast forward to just last month, and buyers forced an upside resolution from this rounding bottom reversal pattern. The path of least resistance is now higher for this key procyclical index. 

On a monthly closing basis, DJTA just became the first major average to make fresh all-time highs. It could be only a matter of time until the others follow.

2/ Materials Break Out

When we dive beneath the surface, we see participation expanding in value-oriented sectors.

Here’s the Large-Cap Materials ETF (XLB) reclaiming its year-to-date highs this week:

Not only is the price taking out a critical resistance level, but it is reaching its highest level in over a year, thus adding XLB to our growing list of new highs.

Notice in the lower pane that momentum, as measured by the 14-period relative strength index (RSI), remains in a bullish regime. If we see an overbought reading in the coming days, this would confirm the breakout.

As long as these new highs stick, we could see rising prices for materials stocks during the second half of the year.

3/ Does New Leadership Have Enough Gas?

Whether you zoom out 12 months to last summer, anchor from the lows last fall, or analyze performance on a year-to-date basis, the trend in long-term leadership is clear. It’s all tech and growth over any significant time frame. Technology and other growth sectors are also outperforming over the trailing quarter.

However, since the third quarter began just over a month ago, we are witnessing a potential changing of the guard as it relates to sector leadership.

Here’s a performance chart of the equal-weight sector indexes during the second half of 2023:

As you can see, energy is just about doubling the performance of the next best group so far in Q3. And it is not just energy—other 2023 laggards like financials and materials are also leading the way since July.

This is only one month of price action, so we need to see more evidence of reversals in these relative trends before becoming more bullish on value and cyclical stocks. With that said, the evidence is building quickly that this could be the place to be in the second half of the year.

4/ The Dollar Pumps the Brakes

When the U.S. Dollar Index (DXY) printed fresh 52-week lows and the G-10 currency index retested its year-to-date lows, our U.S. dollar advance-decline (A/D) line (comprising 29 USD pairs) had yet to undercut its pivot lows from mid-June.

The A/D line indicated a lack of broad dollar weakness. 

Check out a triple-pane chart of the aforementioned indexes with the USD advance-decline line in the lower pane:

Fast forward to today, and all three lines are catching higher—DXY included.

A couple weeks of strength hasn’t erased months of meandering. But if a failed DXY breakdown comes to fruition on the heels of a swift rally, risk assets will likely fall under pressure.

It all depends on which risk assets we’re talking about. Commodities and cyclical value-oriented stocks could better withstand dollar strength since they benefit from elevated rates.

On the other hand, headwinds will likely increase for the major U.S. stock indexes.

Originally posted 1st August 2023

Join the Discussion

Thank you for engaging with IBKR Campus. If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Your email address will not be published. Required fields are marked *

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.