Friday, June 26, 2009

6 Leaders For The Next Rally Phase

It has been about 3 months since I last highlighted the 6 sectors or industry groups that could lead the next bull market. The group of 6 were the following: semiconductors, airlines, housing, retail, healthcare information, and networking.

First, I was particularly drawn to this group because it seem to provide a good cross section of the market; there is tech, transportation, the consumer, and an Obama favorite in healthcare information. Second, several in this group of 6 have been down and out for years -think semis, airlines and housing. Investors are focusing on the last bull market winners such as energy, metals, and financials; this group of 6 focuses on new leadership. In other words, I attempted to answer the question: what will the new leadership look like for the next bull market?

Of course, when I wrote the initial article 3 months ago, I was under the assumption that we were in a bear market rally. I am still operating under that assumption as this is not the launching pad for a new bull market. A retracement of the current rally that turns sentiment bearish (i.e., bull signal) could lead to that higher low that would suggest to me that a new bull market is beginning. So with regard to our group of 6, they still look like potential leaders for the next bull market when that opportunity arises.


I first mentioned the semiconductor sector in the article, "Semiconductor Sector: Potential For Secular Run", back on March 20, 2009. At that time I stated:

"I like to seek out assets or sectors where the secular winds will propel prices higher. In other words, I am looking for the "next big thing", and the semiconductor sector would qualify. From a technical perspective, this sector has all the right attributes to undergo a prolong run."

Since that time, the $SOX or semiconductor sector is up about 20%. See figure 1, a monthly graph of the Philadelphia Semiconductor Index ($SOX). The "next big thing" indicator, which attempts to identify those assets with a high likelihood of undergoing a secular trend change, is in the lower panel. This indicator is in the zone where one expect a secular trend change to occur. The $SOX has found support at the prior lows of 1998 and 2002, and it is now trading above its simple 10 month moving average. It has run into resistance at the down sloping trend line. The recent bounce from the support lows represents a retracement back to the breakdown point. I would look for the $SOX to mark time between the simple 10 month moving average and the 300 level on the index.

Figure 1. $SOX/ monhtly


Figure 2 is a monthly chart of the Philadelphia Housing Sector Index (symbol: $HGX). Once again, the "next big thing" indicator is in the lower panel, and it is in the "zone". The housing index is down about 8% since we highlighted the sector back in April. The index remains bullish as prices have closed above the down sloping trend lines, and at present it is above these levels. A monthly close above the simple 10 month moving average in the context of a new bull market would provide bullish confirmation. Failure to remain above the trendlines would be a negative.

Figure 2. $HGX/ monthly


Figure 3 is a monthly chart of the CBOE S&P Retail Index (symbol: $RLX.X) with the "next big thing" indicator in the lower panel. Since our mention in April, the retail index is essentially flat. This is a controversial pick because the "consumer is dead" argument certainly has an ounce of truth to it especially with poor wage growth, high unemployment, rising gas prices at the pump, and a need to increase savings. But technically, the story remains bullish as long as prices remain above the simple 10 month moving average.

Figure 3. $RLX.X/ monthly


Figure 4 is a monthly chart of the AMEX Airline Index (symbol: $XAL.X) with the "next big thing" indicator in the lower panel. I have highlighted the airlines sector several times over the past 3 months, and a monthly close below the pivot point at 16.08 would be bearish. Until that happens, this looks like a bottom.

Figure 4 $XAL.X/ monthly

Healthcare Information

Figure 5 is a monthly chart of the Healthcare Information sector; this data comes from the Morningstar Industry Groups. Back in April, I had noted the significant and prolong price consolidation going on, and I stated that this is an "excellent launching pad for a new bull market". Since our highlight in the article, the Healthcare Information is up a little over 20%. Looking at figure 5 we see the sector has "broken out", and the 2000 highs are within easy distance.

Figure 5. Healthcare Information/ monthly


Figure 6 is a monthly chart of the AMEX Networking Index (symbol: $NWX.X) with the "next big thing" indicator in the lower panel. The indicator indicates the potential for a secular trend change. The Networking Sector is up about 6% since our mention in April. Prices have run into resistance at the 200 level and at the two pivot lows identified by the blue arrows on the graph. Nonetheless, the price action has been bullish. A monthly close above the simple 10 month moving average and above the down sloping trend line are bullish. Prices have been consolidating for two months now, which is a positive. A monthly close above the 200 level would likely catapult prices to 240 and possibly 300.

Figure 6. $NWX.X/ monthly

Our group of 6 still has the potential to provide market leadership if and when the next rally phase begins.

1 comment:

jbr said...

Ran into this blog today and liked a lot of the posts. Thanks for writing!!

Curious to not see BioTech or Alt Energy or Water management or agri-business sectors in this list. Would appreciate thoughts on those sectors if at all they look interesting to you.