Stock Sector Scout, 4 February 2024

Indexes continue to hit all-time highs, the underneath picture is mixed but plenty pockets of strength present.

Market conditions

Last week I considered that the new cycle had begun, and stipulated that January 17th was a good candidate as a starting point. After another week in the books, that theory has been confirmed further by the market breadth picture AND industry cycle starts. First, let’s look at the overall market breadth and watch how January 17th is the low point:

Notice how January low is on the 17th. And now the cycle starts:

January 17th is standing out with 40 industries experiencing their “low” point in 20 day moving average lines. That’s a very strong and frankly a typical cycle start picture.

How I use this information? I am careful about taking profits at this stage as the cycle is new. This is the time to let the winners run and not interfere with them. Since SPY and QQQ are in bullish posture and this is a fresh cycle time, I avoid taking on new shorts unless the chart pattern is a complete “no-brainer” short candidate. If I see any favorable long setups, I do take them at this time.

If everything goes according to a normal schedule, I will follow this posture for the next two weeks before I will evaluate where we stand and start taking profits in longs and start scouting for some solid short ideas.

Industry Highlights

There a few new industries that sprung into action from January 17th and Railroads is as good of a choice to highlight as any of them:

We see a cycle end into 17th and then just take off. It’s not uncommon after the initial take off to have a pullback session and then continue running and that seems to have played out in the Railroads industry. It’s not my favorite industry to trade in as the volatility can be very small here but that also mean that sometimes you can take larger positions here.

Tickers in this industry that I track:

ticker, company, sector, industry, country

UNP,Union Pacific Corporation,Industrials,Railroads,USA

CP,Canadian Pacific Railway Limited,Industrials,Railroads,Canada

CSX,CSX Corporation,Industrials,Railroads,USA

NSC,Norfolk Southern Corporation,Industrials,Railroads,USA

WAB,Westinghouse Air Brake Technologies Corporation,Industrials,Railroads,USA

TRN,"Trinity Industries, Inc.",Industrials,Railroads,USA

GBX,"The Greenbrier Companies, Inc.",Industrials,Railroads,USA

FSTR,L.B. Foster Company,Industrials,Railroads,USA

RVSN,Rail Vision Ltd.,Industrials,Railroads,Israel

KIQ,Kelso Technologies Inc.,Industrials,Railroads,Canada

CNI,Canadian National Railway Company,Industrials,Railroads,Canada

Another industry that has made a comeback to the strength list is Building Materials:

The same deal, low on January 17th followed by a strong bounce, slight pullback, and then moving up and continuing the move. The stocks that I track in this industry are:

ticker, company, sector, industry, country

CRH,CRH plc,Basic Materials,Building Materials,Ireland

MLM,"Martin Marietta Materials, Inc.",Basic Materials,Building Materials,USA

VMC,Vulcan Materials Company,Basic Materials,Building Materials,USA

JHX,James Hardie Industries plc,Basic Materials,Building Materials,Ireland

EXP,Eagle Materials Inc.,Basic Materials,Building Materials,USA

BCC,Boise Cascade Company,Basic Materials,Building Materials,USA

SUM,"Summit Materials, Inc.",Basic Materials,Building Materials,USA

KNF,Knife River Corporation,Basic Materials,Building Materials,USA

USLM,"United States Lime & Minerals, Inc.",Basic Materials,Building Materials,USA

TGLS,Tecnoglass Inc.,Basic Materials,Building Materials,USA

CPAC,Cementos Pacasmayo S.A.A.,Basic Materials,Building Materials,Peru

SMID,Smith-Midland Corporation,Basic Materials,Building Materials,USA

CAPT,Captivision Inc,Basic Materials,Building Materials,United Kingdom

RETO,"ReTo Eco-Solutions, Inc.",Basic Materials,Building Materials,China

LOMA,Loma Negra Compania Industrial Argentina Sociedad Anonima,Basic Materials,Building Materials,Argentina

Breakout watch

At this moment nothing is catching my eye for a breakout candidate. The last week’s entries actually failed to show any kind of follow through. Oil actually pulled back in a bigger way than I would have liked and I have decided to stay away from that industry for now. I did get into Credit Services and Airlines stocks, although the industries there are showing up as somewhat OK and not “running”, so to speak. I am betting on the normal market cycle to carry me in those holdings.

Struggling industries

It’s a six weeks in a row appearance for Tobacco:

It showed a bit of life but instead of building out a new cycle up, it seems to be pulling down again.

I mentioned Oil not doing great, and here is Oil & Gas E&P breadth chart, for instance:

I need to go and see if there are any good shorts in this industry that are no brainer type to get in and see if I can ride this weakness.

REIT - Office industry looks particularly weak and attractive for short scouting since it appears new in its breakdown:

Here are some of the tickers in this industry:

ticker, company, sector, industry, country

ARE,"Alexandria Real Estate Equities, Inc.",Real Estate,REIT - Office,USA

BXP,"Boston Properties, Inc.",Real Estate,REIT - Office,USA

VNO,Vornado Realty Trust,Real Estate,REIT - Office,USA

KRC,Kilroy Realty Corporation,Real Estate,REIT - Office,USA

SLG,SL Green Realty Corp.,Real Estate,REIT - Office,USA

DEI,"Douglas Emmett, Inc.",Real Estate,REIT - Office,USA

EQC,Equity Commonwealth,Real Estate,REIT - Office,USA

HIW,"Highwoods Properties, Inc.",Real Estate,REIT - Office,USA

JBGS,JBG SMITH Properties,Real Estate,REIT - Office,USA

ESBA,"Empire State Realty OP, L.P.",Real Estate,REIT - Office,USA

DEA,"Easterly Government Properties, Inc.",Real Estate,REIT - Office,USA

PKST,Peakstone Realty Trust,Real Estate,REIT - Office,USA

NLOP,Net Lease Office Properties,Real Estate,REIT - Office,USA

CMCT,Creative Media & Community Trust Corporation,Real Estate,REIT - Office,USA

Closing thoughts

I have opened seven new positions last week that are showing profit and I will continue to ride them into this new cycle. The earnings that came out last week overall were very strong and from the universe of stocks that I track, the stocks that reached new highs/top gainers compared to top losers/new lows ratio was 7 to 1. That’s a very positive earnings season so far. Let’s see what this week will bring and if the trend continues.