Leadership Key to Uptrend

The broad market remains in a solid uptrend, but… You can fill in the blank. There have been plenty of buts in the headlines offered as reasons to be concerned at the current levels of the broad market indexes. I will be the first one to admit there are reasons to be concerned, and many are as valid as rain. However, the upside trend is in place and we have to go with the flow until which time it comes to an end. There has to be volatility for a trend to be challenged and the VIX index is testing the lows of last summer near 17. Thus, until the volatility or fear sentiment starts to move higher investors seem content to go with the flow, regardless of the BUTS. The following are four sectors to watch as we start the trading week.

Semiconductors have been hot and cold during the current move higher. As you can see on the chart they lagged as the broad markets turned higher and then accelerated to the July highs and has stalled again. The uptrend is still in play and the test of support near the 418 mark is positive and holding. The challenge comes in the mixed news throughout the sector. The cloud computing stocks are setting the pace on the upside, but the traditional computer hardware continues to slow from the tablet expansion. Scanning the stocks I find plenty of topping patterns developing and that explains the sector overall. Watch and scan the stocks to clues to the broad sector, and remember technology has been one of the leaders for the overall market.

Retail continues to find a way to move higher. The chart below of XRT, SPDR Retail ETF has been a leader since breaking out in January. As well as the sector has done overall the leadership in the sector has been impressive. The rotation to the specialty and higher end retailers as been evident in the stocks. Saks reported earnings last week with the comment that shoppers are willing to pay full price. That is a good sign for the sector overall. The one challenge on the horizon, no buts, gasoline prices moving towards the $4 level and beyond. That will impact the consumer and could impact the retail sector it is all worth watching and managing our stops in the event the trend shifts.

Healthcare has been a challenge to relative to the ups and downs short term. The uptrend remains in play and the topping or test of the 30 day moving average has been a result of pharmaceuticals and biotech pulling back and testing support. They bounced back last week with XPH, SPDR Pharmaceutical ETF hitting a new high and XBI, SPDR Biotech ETF bouncing off the 30 day moving average as support. The Providers (IHF)  and Medical Devices (IHI) are both adding to the upside as well. This remains a positive sector overall. Adjust your stops according to your risk and time-frame, but hold as the positive momentum continues.

Financials have been a mixed bag relative to leadership for the broad markets and they continue to be mixed. The last three weeks of trading has resulted in a sideways movement for the broad index. The banks remain under pressure relative to outlook for growth and the regional banks continue to suffer from the zero percent interest rates from the Fed. The Brokers (IAI) have started to push higher of late with JP Morgan leading the sector. The insurance companies have made a positive move higher as well adding some support to the sector. Look for the sector to hold above the 30 day moving average as support and find a much needed catalyst to the upside if the trend is to continue higher.