Oversold Conditions Create Breadth Thrust Setups – %Above 50-Day and Zweig

Healthcare related ETFs are leading the market since June. QQQ and XLK peaked in June, fell into July and recovered with gains into September. Both are still just below their June highs. In the meantime, money moved into healthcare-related ETFs with the Healthcare SPDR and Biotech ETFs gaining over 15% since June. Healthcare is the strongest sector since June and the second strongest sector since May. It is also the fourth biggest sector in the S&P 500 (9.36%). $XLV $IBB $XBI $SBIO $IHI $IHF

The broader market was hit rather hard in September as macro headwinds swirled. These headwinds, however, did not affect QQQ, the tech sector and the healthcare sector. Strength in these two sectors is propping up SPY, which is down a fraction month-to-date (-.19%). It is hard to have a bear market when SPY is above its 200-day and tech is leading. Today’s report will focus on the headwinds, key levels for the leaders and an alternative interpretation of the SMH chart. $SPY $QQQ $XLK $MAGS $AIQ $ARTY $SMH $SOXX $DRAM

There is some serious bifurcation in the stock market right now, but this has yet to affect SPY, which is heavily weighted towards the Technology sector. Tech and AI are strong since August, but Industrials, Retail and Housing are weak. This is a sort of rolling rotation where money moves out of one part and into another. Today’s report will focus on the leaders: tech, AI, MAGS, cybersecurity, software and cloud. $SPY $QQQ $XLK $XLC $MAGS $AIQ $ARTY $SMH $DRAM $SKYY $CIBR $IGV

Commodities, stocks and the Dollar are higher since March, while gold and bonds are lower. I picked March because this is when the war with Iran broke out and oil surged. The 12-month Oil Fund (USL) is up some 47% since March. Other commodity groups are also higher (base metals, copper and agriculture). $GLD $GDX $SLV $UST2Y $SPY $IWM $RSP $CPER $DBB $USL $SRUUF $BLOK

Today’s report focuses on two stocks from the Healthcare Providers ETF (IHF) and two from the Aerospace & Defense ETF (ITA). IHF is leading the market as it consolidates near its highs. HCA Corp and Universal Health Services show signs of bottoming over the last few months. Aerospace & Defense was leading the market in August, but took a hard hit over the last four weeks. Lockheed Martin and RTX Corp pulled back within the group and became oversold within their uptrends. $LMT $RTX $HCA $UHS

The weight of the evidence remains bullish for stocks, but oil, interest rates and inflation are taking their toll on parts of the market. Small-caps are bearing the brunt of recent selling pressure with large-caps and large-cap techs holding up better since August. Semis are at a moment of truth, while the AI/Tech ETFs are holding their breakouts. Elsewhere, I am seeing bullish setups in Regional Banks, Telecom, Healthcare Providers and Medical Devices. $SPY $QQQ $XLK $IWM $AIQ $ARTY $SMH $SOXX $DRAM $IHI $IHF $KRE

The intermarket picture is negative for the average stock (equal-weights, small-caps and mid-caps). Rates are rising and this rise is accelerating. Rising oil prices are stoking inflation. Value and energy are leading within the stock market, while consumer discretionary and industrials move lower. Tech and semis are holding up well since August, and keeping SPY/QQQ afloat. Today’s report also covers gold, copper, uranium and blockchain. $IEF $UST2Y, $UST10Y, $XLY $GLD $CPER $SRUUF $BLOK

Technology, energy and utilities moved higher on Tuesday, while the other eight sectors closed lower. Performance was also lopsided within the technology sector. Semis (SOXX, SMH, DRAM) moved higher, while the MAG7 (MAGS), Software (IGV), Cloud (SKYY), Cybersecurity (CIBR) and Fintech (FINX) moved lower. Tuesday is just one day, but the split has been building since August. Tech and semis are holding up, but there are sizable pockets of weakness that include consumer discretionary and housing. $USL $XLE $XLU $IJR $IJH !GT200SPX

While there are some sizable pockets of weakness within the market and rolling rotations underway, the weight of the evidence remains bullish. It is still a bull market. Tech surged in April-May, corrected in June-July and resumed its leadership in August-September. Tech leadership came at the expense of industrials, utilities, housing and retail, which moved lower. Seasonally, September is one of the weakest months for stocks. Perhaps this seasonal pattern is already playing out in some of the more economically sensitive areas. $SPY $QQQ $XLK $AIQ $ARTY $IYZ $SKYY $IGV $CIBR

The Semiconductor ETFs (SMH & SOXX) and the Memory ETF (DRAM) broke out with surges into August and then corrected into early September. The August breakouts were medium-term bullish and the current corrections provide short-term setups. This report will identify the patterns at work, the key levels to watch and the one showing relative strength. $SMH $SOXX $DRAM $NVDA $TSM $MU

The Industrials SPDR was hit hard over the last two weeks, but the long-term trend remains up and oversold conditions are present. Today’s report will show a long-term breadth indicator to define the trading bias and three short-term breadth indicators to identify oversold conditions. Attention then turns to XLI’s largest industry group, the Aerospace & Defense. $XLI !GT200XLI !GT50XLI !GT20XLI $ITA

Commodities remain strong as a group. Oil is trading near new highs as the 12-month Oil Fund extends on its triangle breakout. Copper is consolidating near a 52-week high, the DB Agriculture ETF hit a new high and gold broke out in early August. Perhaps even more telling, middle distillates, such as heating oil and diesel are trading near new highs. $USL $USD $GLD $CPER $DBB $SRUUF $DBA

Even though the weight of the evidence remains bullish for stocks, there are some sizable pockets of weakness in key areas. This weakness is exacerbated by strength in the energy sector, which is not the sector we want to see leading the market. The Energy SPDR hit a new high this week as the 12-month Oil Fund exceeded its summer highs. $XLE $XLK $IEF $UST10Y $JNK $XLY $XLC $ITB

The weight of the evidence remains bullish for stocks, but the macro picture is mixed as rates continue to rise, oil prices remain high and September seasonal patterns loom. Small-caps fell over the last two weeks as breadth weakened, while QQQ and XLK successfully defended their wedge breakouts. The Semiconductor ETFs are struggling and I am raising my re-evaluation levels for some of the AI ETFs. $UST2Y $UST10Y $USL $SPXA200R $SPXHLP $SPY $QQQ $XLK, $SMH $SOXX $DRAM $AIQ $ARTY $DTCR $IDGT $UFOX $IYZ $BLOK

Led by weakness in the Aerospace & Defense ETF, the Industrials SPDR took a hit in the second half of August. Despite this hit, both ETFs are in long-term trends and setting up after short-term pullbacks. Attention then turns to bullish setups in three Aerospace & Defense stocks: GE Aerospace, Lockheed Martin and Howmet. $XLI $ITA $GE $LMT $HWM

The Home Construction and Homebuilders ETFs are lagging over the past year, but they caught fire in May-June with outsized moves and higher highs. These moves could signal the start of trend reversals. Both ETFs formed bullish continuation patterns and I am watching for breakouts. We will also look at the 10yr Yield, its correlation housing and three stocks. $ITB $XBH $UST10Y $XLRE $XLU $TAN $PHM $TOL $HD

Despite some concerns with seasonal patterns and rising rates, the weight of the evidence remains bullish for stocks. The Technology SPDR, Nasdaq 100 ETF, Semiconductor ETFs and AI-adjacent ETFs broke out with surges in early August. These ETFs pulled back over the last five days and many are testing their breakout zones. Failure to hold these breakouts would be negative and could weigh on the broader market. $SPY $QQQ $XLK $SMH $SOXX $DRAM $EWY $AIQ $ARTY $DTCR $IDGT $UFOX $IYZ

The Treasury announced a plan to increase its support for the bond market. Wednesday’s announcement put a bid in bonds, weighed on the Dollar and lifted gold. The US Dollar Index extended its breakdown as gold extended on its breakout. Elsewhere, I am seeing bullish setups in the Blockchain Tech ETF and the Physical Uranium ETF. $IEF $UST10Y $USD $GLD $BLOK $URA $SRUUF

There is broad strength within the Healthcare sector because over 80% of its stocks are in long-term uptrends. This is also true for Energy and Finance. The Healthcare SPDR and Biotech ETF confirm strength with both hitting new highs this week. Within these groups, I see a flag breakout in Eli Lilly and a steady uptrend in Biogen. $XLV $IBB $LLY $BIIB

The stock market remains in bull mode, but traders should be prepared for the possibility of a correction or pullback. It has been 91 days since the last 5% drawdown and seasonal headwinds are around the corner. SPY, QQQ, XLK and the AI ETFs broke out with surges in early August. It is important that these breakouts hold. Today’s report will set the key levels to watch. $SPY $QQQ $RSP $XLK $SMH $SOXX $DRAM $AIQ $ARTY $DTCR $IDGT $UFOX $IYZ