After multiple attempts over the past year, Health Care has finally been able to accelerate through stiff resistance, as longer-term laggards Biotech and Providers & Services (Managed Care in particular), exhibited impressive reversals. Catching many offsides, ourselves included, we would expect a period of digestion as deeply overbought conditions meet resistance. Can momentum persist? As always, how they handle this overhead supply will be particularly telling. While the turn in Managed Care was violent as political concerns eased, the turn in Distributors has been more measured, but nonetheless compelling. We’ve discussed the improving action in CAH, MCK AND ABC before, but we remain intrigued with their potential following 4-year downtrends.
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Is the worst over for Teva Pharmaceuticals? After falling 92% from its peak in July ’15, signs are developing that the stock is attempting to carve out a base and turn. Currently 3-ranked in the Wolfe Technical Model, TEVA faces an important test at $10.75, as resistance on multiple fronts awaits directly overhead. A successful break through this level and the stock should fill the May gap back to $14 at a minimum, or a 36% return from current levels.
Our Wolfe Japanese Tech Stock Index continues to perform well on an absolute basis (+1% overnight to a new reaction high and up in 8 of 11 months so far in 2019) and on a year-to-date relative basis vs. the Nikkei (+44% vs. +17%). This basket of Japanese technology stocks is up 46% in US$ which is ahead of the 40 ½% put up by the S&P Info Technology Sector.
“Get Smart” was a late 1960s tv show that was a send-up of secret agents and covert operations between the D.C. based good guys, CONTROL, while they battled the nefarious KAOS. Maxwell Smart (Don Adams, L) was Agent 86 & CONTROL’s version, if you will, of James Bond. He’s sitting with the Chief (Edward Platt) as they discuss confidential info while sitting under the “Cone of Silence.” CONTROL wins the battles, of course, but not before Smart bungles his assignments and is bailed out by his partner, Agent 99 (Barbara Feldon). We’re not using the “Cone of Silence” to present the following charts (psst - it never worked) but we’re pretty-confident that you’ll pick up some good market intel from what follows. Let us know what you think.
Our work continues to slowly improve for oil and we continue to believe that it can work to the $65 level. You’ll likely recall that the $65 level was the cascading breakdown level from which it failed in March 2018 this area was also important resistance in the spring of 2019. We’ll be the first to tell you that the technical set-up for oil is not especially dynamic and the long-term pattern for it is challenged. However, if pressed we would say that (a) crude has the makings of a sloppy BASE from 2015 to date, (b) support in the low 50s was reinforced three times since June 2019, and (c) it has carved out a succession of higher lows since the Feb 2016 low in the mid-20s.
We’re encouraged by the vibrant price action for Toyota (7203 JP). We realize that it is overbought near-term (+14% over the last 24 days) but we want to be involved on any consolidation or pullback. This note is an adjunct to our prior Japan charts / encouraging commentary and adds greater emphasis to our line that Japan is, at least, “the land of the rising some.” By using the history between Toyota and our indicator (pink line in the chart below) you’ll see quickly why we believe Toyota is an add/buy on any pullback/ consolidation. And given the stock’s history / prior advances, it doesn’t seem so extraordinary to expect it to make a new all-time high above its former all-time high of 8799 (Mar ’15). Such a move would see the stock advance about 11% above last night’s close. Add in the dividend of 2.8% and the total return would be as pleasant as a bowl of ramen from Momosan Ramen, Totto Ramen or Ivan Ramen – let us know if you’d like to have lunch with us at these places.
As investors grapple with the sharp rotation into cyclicals, the question of how sustainable their leadership is. Today’s video looks at the key drivers of this trade.
Breaking out to fresh highs, we find it hard to buy into the narrative that Value has been mired in a bear market. Yes, it hasn’t kept up with its Growth counterpart, but a 245% return since March ’09 for the Russell 1000 (vs. 406% for the R1G) isn’t too shabby. Investor frustrations have centered around the lagging relative, but are we witnessing the inflection point in this multi-year run of underperformance?
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