No Leadership Plagues the Market

Can the S&P 500 index hold support at the 1330 level? The hope of the Fed offering up stimulus has helped keep the downside in check, but the pressure from the economic data, earnings and Spain are not making it easy. This tug-o-war continues and will likely be the theme near term. The short bursts both up and down on the index as easy enough to see on the chart, but difficult to trade. The trend remains up… barely, and support at the 1330 level is key to holding the move to the upside. The next support level would be the 200 day moving average and 1305. There is still no one sector setting the leadership for the broad index and therein lies the challenge.

Healthcare stocks were providing some leadership on the upside, but the downgrades and revisions to forecasts for the healthcare providers (IHF) has pushed the sub-sector lower. The HMO index was off 4.4% on Wednesday and the providers dropped 2.1%, and down nearly 7% off the highs from last week. Worries about growth looking forward remains the key challenge as costs continue to rise. Obamacare is impacting the projections as well with the law being phased in and the impact being felt by the companies. The Pharamceutical sub-sector has pulled back to support in sympathy with the data. XPH, SPDRs Pharmaceuticals ETF is testing the $57.50 mark currently. A break lower in the sector overall is a negative for the broad index. Dow Jones US Healthcare index is testing support at 391 and a break of support could bring the sellers into play. WLP, HNT, UNH, CVH, AET, CI and HUM all broke key support levels this week as the short interest has risen in the sector.

Financials are another sector on the verge of breaking lower and have not reacted well to this earning cycle. The big banks (KBE) are hit and miss with the dowttrend off the March high fully intact. The break of the 200 DMA this week is only adding to the downside pressure on the sector. XLF, SPDR Financial ETF is sitting on the 200 day as support currently. There is no momentum in the sector to speak of and with virtually no dividend premium to hold the stocks they are becoming viewed as dead money by analyst. The regional banks (KRE) were deemed to be the one part of the sector to offer some upside potential, and two weeks ago as earnings began they broke above the downtrend line. That has reversed over the last week and attempting to hold support at the $26.40 level. This is another sector when scanning the stocks you see plenty of breaks lower with some attempts to hold the near term support levels. If they break those levels the impact to the broad index will be another negative on the downside.

Telecom (IYZ) has been another leader showing signs of breaking down. The break of support at $22.30 was the first negative and the break of the uptrend line off the June low is the other. $22.05 is the next level of support to hold. The earnings data in and around the sector has been the catalyst. Weaker iPhone sales had some impact on the Apple news. AT&T and Verizon met earnings expectations, but disappointed on the revenue data. That theme has been playing out with earnings overall. It’s more about worries looking forward than reality of the numbers. The downside sympathy trade. I like the sector fundamentally, but we have to watch the charts for support to hold and then find the opportunities worth owning going forward.

Semiconductors (SOXX) were a bright spot on Wednesday as earnings from Altera and Broadcom pushed the index 2% higher. The recent test of the lows at $47.20 has held and the bounce is in play, but I am not optimistic about the outlook going forward. Slowing in Asia and Europe are weighing on the sector overall and the forward guidance has been timid. If, and that is a big if, the upside could gain some traction the sector would provide some hope for the broad indexes.

There are stocks doing well, but the overall leadership by sector hasn’t materialized. This makes investing a challenge overall. Investors and Wall Street have their favorites like Apple, Boeing, Broadcom, Panera, Pepsico and Whole Foods, but they are not enough to drive the borad indexes higher. There has to be some leadership by sectors to accomplish that feat. Be patient, take what the market gives, but be mindful of what is taking place overall in the broad market. Being a salmon sounds fun, but the end results are always the same.