As we all know, technology stocks have been nothing short of phenomenal during this bull run. To help frame how good they have been, of the largest 25 names in the S&P 500 Information Technology sector, 24 of them are not only up year to date, but also for the past 12-months, with a median returns of 13% and 44% respectively. The lone exception? Cisco. Down 4% over the past year, we would expect the struggles for this former bellwether to persist. On the flip side, will the bulls in IBM finally be rewarded? Challenging resistance that has been in place since ’12, the stock continues to build a base, and a successful break of $160 should do the trick.
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What a start to the year for the Growth style. While the Russell 1000 Value index has posted a meager return of 20 basis points through today’s close, its growth counterpart is up an eye-opening 6.9%! A dovish Fed and concerns around global growth have clearly benefitted those secular growers that can navigate the developing macro headwinds, but at some point, and within the context of an uptrend, the deeply overbought conditions highlighted in today’s note should come into play.
I’m using the late 1970s cult classic movie The Warriors as my intro today (2/8/20). Charts with comments can be found on pages 2 – 14. Let me know if you have any comments or questions. And if you’ve seen the movie, too.
We’re always on the lookout for a turn/reversal in long-term trends and pair trades. While Health Care broadly consolidates following its bullish breakout and acceleration from its 12-month base, a longer-term leader within the sector is starting to give way to a persistent laggard. Since the start of ’14, the S&P 1500 Managed Health Care industry has risen by 253%, while the long-suffering Drug Distributors have posted a decline of 6%, but as the chart below highlights, the relative leadership of the former is starting to give way to the latter. Make no mistake, these longer-term trends take time to reverse, but the breakout from the descending channel for the first time in 6-years definitely caught our attention. While still early, the action at the individual stock level is suggestive that this reversal is gaining traction broadly.
We are NOT dismissing the concerns or harmful effects of the Coronavirus. Rather, we believe it’s more important for owners of HK stocks to consider current price action for the Hang Seng and compare it to the index’s own historical price history. Doing so has convinced us the Hang Seng’s current down move (-9.3% over 6 days) is a prelude to a more important leg lower.
An interesting development occurred while Industrials were breaking out from their two-year base – the sector’s relative performance went on to make a 5-year low. Odd to say the least, and probably a function of tech’s dominance from a capitalization standpoint, but curious nonetheless given investor sentiment around cyclicals. Cyclical groups such as Machinery and Electrical Equipment initially led the charge, but as each faced significant resistance, their deeply overbought conditions came into play, giving way to Commercial and Professional Services to resume their leadership ascent.
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