Stock Sector Scout, 6 October 2024
China's Market 'Pump' Persists, REITs Continue to Struggle, Energy and Materials Dominate Strength List
Market Overview
The markets were relatively calm this week, except for China-related stocks. If not for Friday's jump, we would have had a negative week across all major indexes. The rise to finish the week helped push things into positive territory.
Meanwhile, the VIX continues to creep up, now at 19 and rising again:
The broader trend has reversed to the upside, increasing the odds of higher volatility in the very near future.
Industry Cycles
The current market cycle is now at 60 calendar days and is showing the end-of-cycle behavior. We got a first "blip" of some industries bottoming:
The Industry Cycle Highs are a bit more scattered as well:
The breadth is also meandering downwards:
This marks three weeks in a row where we are putting in a lower high. I try to keep an open mind for all directions, but so far, the evidence and signals are building up, suggesting that the market is due for more downward pressure in the upcoming weeks.
Industry Highlights
I'll start with Coking Coal again, a carryover from last week. It has continued its ride:
The same story applies to Thermal Coal:
In general, the industrial/material-related industries have jumped and remained elevated. Oil, which was very weak as recently as two weeks ago, has changed course. I had XLE, a major energy ETF, under monitoring for breaking its downward channel movement, and we saw that occur during the week:
Continuing with the theme of industrial materials, Copper has been on a tear and separated itself from other metals such as Aluminum and Gold:
Uranium has been looking solid, with some of the major players reaching new 52-week or all-time highs:
I should mention that I noticed many Insurance-related industries jump higher and show strong moves to the upside. It's unclear how long the move will last, but so far, it has been noticeable across the board.
Struggling industries
REITs have stayed here and showing nothing but continued pullback. Here is, for instance, the REIT - Residential pullback:
I still think this has a chance of being a short-term event, and the gains of summer are being "digested" by market participants. The long-term breadth (the blue line) has not moved much.
Gold, which has been talked about much in the mainstream, has also shown pullback behavior:
I wonder if this is related to the dollar having a big week in the markets.
I am also carrying over Utilities - Water as an industry that I wish to highlight as having a weakness spell:
The long-term breadth has turned down too.
Closing thoughts
From the looks of it, I expect next week to be a profit-taking week for my longs. I have a few long-term positions that I have held for 30-90 days that are approaching their trailing stops. As I mentioned last week, I have been on the lookout for short positions and opened one on Monday, 9/30. It was an FND put spread that worked almost immediately and is nearly 100% in profit. I am continuing to look for more short ideas and will try to get exposure to them through put spreads. During the cycle end, I stay away from any new market buys on the long side.
The China "pump" has not slowed down, so it will be interesting to watch how that corner of the markets will progress in the next week.