Stock Sector Scout, 28 January 2024
Markets have continued their march upwards, suggesting that a new cycle has begun.
Market conditions
I must admit that I am quite perplexed by the current stock movements. We had another positive week in all of the major indexes, and the breadth moved up as well. Here is the SMA20 and SMA200 breadth for the last three months:
Looking at this chart, you could argue that January 17th was the new cycle start. And if that’s the case, it has been a bit of a “whimperish” one.
As I said earlier, I am surprised, but going with what the market is telling me: new cycle is here. The same is being confirmed by the “industry cycle starts” chart that I track which shows the number of industries reaching 90 day minimum SMA20 breadth point, usually a good indicator of a cycle start for the industry:
From January 17th all the way to today we have quite a few industries bottoming breadth wise and potentially starting their new moves up.
In such conditions, if I see a good chart and good price action in a positive direction, I will take long trades. I will avoid shorting here unless the whole industry that the short is in looks weak, or the industry looks just OK and the stock has an ideal short setup. Otherwise, just staying away.
Industry Highlights
I will mention “Insurance - Property & Casualty” now for the fourth week as it still put in a solid performance:
I will say that now to me it is flashing the signs of the cycle coming to an end soon and I would avoid starting new longs here. Here are the tickers in this sector:
ticker, company, sector, industry, country
PGR,The Progressive Corporation,Financial,Insurance - Property & Casualty,USA
ALL,The Allstate Corporation,Financial,Insurance - Property & Casualty,USA
HIG,"The Hartford Financial Services Group, Inc.",Financial,Insurance - Property & Casualty,USA
MKL,Markel Corporation,Financial,Insurance - Property & Casualty,USA
L,Loews Corporation,Financial,Insurance - Property & Casualty,USA
CNA,CNA Financial Corporation,Financial,Insurance - Property & Casualty,USA
AFG,"American Financial Group, Inc.",Financial,Insurance - Property & Casualty,USA
KNSL,"Kinsale Capital Group, Inc.",Financial,Insurance - Property & Casualty,USA
SIGI,"Selective Insurance Group, Inc.",Financial,Insurance - Property & Casualty,USA
RLI,RLI Corp.,Financial,Insurance - Property & Casualty,USA
THG,"The Hanover Insurance Group, Inc.",Financial,Insurance - Property & Casualty,USA
KMPR,Kemper Corporation,Financial,Insurance - Property & Casualty,USA
MCY,Mercury General Corporation,Financial,Insurance - Property & Casualty,USA
PLMR,"Palomar Holdings, Inc.",Financial,Insurance - Property & Casualty,USA
STC,Stewart Information Services Corporation,Financial,Insurance - Property & Casualty,USA
LMND,"Lemonade, Inc.",Financial,Insurance - Property & Casualty,USA
Breakout watch
This week I have noticed “Credit Services” industry coming in with good earnings reactions. The breadth chart looks like the industry might have started a new move up as a result:
It seems to mirror closely the overall market cycle for the last four months. I will be looking at this industry for long candidates to open the week. AXP in particular has caught my attention.
Here are some of the companies in this sector:
ticker, company, sector, industry, country
V,Visa Inc.,Financial,Credit Services,USA
MA,Mastercard Incorporated,Financial,Credit Services,USA
AXP,American Express Company,Financial,Credit Services,USA
PYPL,"PayPal Holdings, Inc.",Financial,Credit Services,USA
COF,Capital One Financial Corporation,Financial,Credit Services,USA
DFS,Discover Financial Services,Financial,Credit Services,USA
SYF,Synchrony Financial,Financial,Credit Services,USA
ALLY,Ally Financial Inc.,Financial,Credit Services,USA
SOFI,"SoFi Technologies, Inc.",Financial,Credit Services,USA
CACC,Credit Acceptance Corporation,Financial,Credit Services,USAa
OMF,"OneMain Holdings, Inc.",Financial,Credit Services,USA
OBDC,Blue Owl Capital Corporation,Financial,Credit Services,USA
ORCC,Owl Rock Capital Corporation,Financial,Credit Services,USA
FCFS,"FirstCash Holdings, Inc",Financial,Credit Services,USA
SLM,SLM Corporation,Financial,Credit Services,USA
WU,The Western Union Company,Financial,Credit Services,USA
UPST,"Upstart Holdings, Inc.",Financial,Credit Services,USA
QFIN,"360 DigiTech, Inc.",Financial,Credit Services,China
BFH,"Bread Financial Holdings, Inc.",Financial,Credit Services,USA
OCSL,Oaktree Specialty Lending Corporation,Financial,Credit Services,USA
ENVA,"Enova International, Inc.",Financial,Credit Services,USA
WRLD,World Acceptance Corporation,Financial,Credit Services,USA
Oil related stocks also appear to have some traction again after languishing for quite some time. Here is a subset of its stocks and their SMA20/200 picture:
As you can see, that’s a very sudden and steep move. Usually we get a few days worth of pullbacks following such a move and if this is a real cycle, it will shoot up hard to the upside after that. I will check-in on this next week.
Airlines have shown a similarly looking spike:
Airlines industry went from being a candidate for shorts to being on alert for going long. Sometimes that’s how it goes. You don’t know what the future will bring and can only prepare, take action, and get out if you are wrong.
Here are the participants that I track in this industry:
ticker, company, sector, industry, country
RYAAY,Ryanair Holdings plc,Industrials,Airlines,Ireland
DAL,"Delta Air Lines, Inc.",Industrials,Airlines,USA
LUV,Southwest Airlines Co.,Industrials,Airlines,USA
UAL,"United Airlines Holdings, Inc.",Industrials,Airlines,USA
AAL,American Airlines Group Inc.,Industrials,Airlines,USA
CPA,"Copa Holdings, S.A.",Industrials,Airlines,Panama
ALK,"Alaska Air Group, Inc.",Industrials,Airlines,USA
SKYW,"SkyWest, Inc.",Industrials,Airlines,USA
AZUL,Azul S.A.,Industrials,Airlines,Brazil
VLRS,"Controladora Vuela Compania de Aviacion, S.A.B. de C.V.",Industrials,Airlines,Mexico
ALGT,Allegiant Travel Company,Industrials,Airlines,USA
ATSG,"Air Transport Services Group, Inc.",Industrials,Airlines,USA
HA,"Hawaiian Holdings, Inc.",Industrials,Airlines,USA
SAVE,"Spirit Airlines, Inc.",Industrials,Airlines,USA
SNCY,"Sun Country Airlines Holdings, Inc.",Industrials,Airlines,USA
MESA,Mesa Air Group Inc.,Industrials,Airlines,USA
JBLU,JetBlue Airways Corporation,Industrials,Airlines,USA
ULCC,"Frontier Group Holdings, Inc.",Industrials,Airlines,USA
CEA,China Eastern Airlines Corporation Limited,Industrials,Airlines,China
ZNH,China Southern Airlines Company Limited,Industrials,Airlines,China
Struggling industries
Tobacco is continuing to lead this section, now with an appearance five weeks in a row:
If I had any shorts in this industry, I would hold on to them and keep on riding this wave down until it shows any kind of life.
I put “Discount Stores” as a new entry last week, and it came through with another weak performance:
I started a few shorts in this industry last week hoping to catch a wave down. Let’s see how it goes. So far the reaction has been muted.
Here are the stocks in this industry:
ticker, company, sector, industry, country
WMT,Walmart Inc.,Consumer Defensive,Discount Stores,USA
COST,Costco Wholesale Corporation,Consumer Defensive,Discount Stores,USA
TGT,Target Corporation,Consumer Defensive,Discount Stores,USA
DLTR,"Dollar Tree, Inc.",Consumer Defensive,Discount Stores,USA
DG,Dollar General Corporation,Consumer Defensive,Discount Stores,USA
BJ,"BJ's Wholesale Club Holdings, Inc.",Consumer Defensive,Discount Stores,USA
OLLI,"Ollie's Bargain Outlet Holdings, Inc.",Consumer Defensive,Discount Stores,USA
PSMT,"PriceSmart, Inc.",Consumer Defensive,Discount Stores,USA
BIG,"Big Lots, Inc.",Consumer Defensive,Discount Stores,USA
TUEM,Tuesday Morning Corporation,Consumer Defensive,Discount Stores,USA
Closing thoughts
I don’t have much that I want to open position wise going into the next week. I have a few candidates selected but so far I am not getting a strong direction to either the upside or the downside and don’t want to get too heavy with the positions. Patience remains my number one choice of action at the moment.s