TECHNOLOGY SECTOR REACHES OVERBOUGHT TERRITORY -- BIG TECH STOCKS ARE UP AGAINST RESISTANCE OR PULLING BACK -- HEALTHCARE WINNERS INCUDE IDEXX LABS, BOSTON SCIENTIFIC, AND MERCK -- HCA HOLDINGS MAY BE NEAR BULLISH BREAKOUT
TECHNOLOGY SPDR FINALLY REACHES OVERBOUGHT TERRITORY ... One of the trends supporting the stock market rally has been a strong technology sector. That group, however, has reached overbought territory for the first time in six months and is starting to weaken. Chart 1 shows the 14-day RSI for the Technology SPDR (XLK) starting to back off from overbought territory over 70 for the first time since last August. That's not necessarily bearish. It just means that the technology group has gotten stretched and is due for some consolidation or a pullback. As the chart shows, the XLK is still well above its 50-day moving average. Any hint of weakness (or stalling) there, however, could add to short-term market volatility. Several big tech stocks are either running into some resistance barriers, or have already started to pull back.
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Chart 1
FACEBOOK AND INTEL BACK OFF FROM RESISTANCE ... Yesterday's message showed Apple (AAPL) challenging its 2015 high near 130. That's a logical spot to expect some profit-taking and the stock is trading lower today. Chart 2 shows Facebook (FB) meeting resistance at its October high, while Chart 3 shows Intel (INTC) doing the same. Charts 4 and 5 show Microsoft (MSFT) and Alphabet (GOOGL) pulling back toward their 50-day lines. AT&T (T) is more of a telecom than a technology stocks. But it's the fifth biggest holding in the XLK. Chart 6 shows that stock meeting heavy resistance along its August/January highs. None of those charts suggest major tops in the making. But they do look like a group that's entering a holding pattern. That could add to short-term volatility in the rest of the market which is already showing short-term signs of weakness.
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Chart 2
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Chart 3
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Chart 4
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Chart 5
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Chart 6
HEALTHCARE WINNERS... While the rest of the market appears to be stalling, money is moving into individual health care stocks. Chart 7 shows the medical supplier IDEXX Laboratories (IDXX) surging 10% to a record high. Chart 8 shows medical equipment stock Boston Scientific (BSX) breaking through last summer's peak to reach the highest level in more than ten years. Chart 9 shows big pharma stock Merck (MRK) trading at a three-month high and not far from a new record. Healthcare has been one of the market's weakest sectors since the election. That's partially due to problems with the pricing of drugs. But it is one of cheaper parts of the market which may explain some of today's big gainers. Health providers are also looking stronger.
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Chart 7
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Chart 8
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Chart 9
ANTHEM IN UPTREND -- HCA NEARS BULLISH BREAKOUT... Back on January 12, I showed health care provider Anthem (ANTM) in the midst of an upside breakout. Chart 10 shows the stock trading at the highest level since summer 2015. Chart 11 shows HCA Holdings (HCA) on the verge of a bullish breakout of its own. With some money coming out of market leaders, it's likely that some of it is being used to buy some individual health care stocks. [My January 12 message also showed Boston Scientific starting to trend higher].
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Chart 10
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Chart 11
S&P 500 MAY BE STALLING ... The stock market's major trend is still up, and there are no signs of a major top. Shorter-term momentum indicators, however, show some stalling That may lead to nothing more than a short-term pullback or a period of relatively choppy action over the short- to intermediate-term. Chart 12 shows the S&P 500 hitting a record high last week. Short-term momentum indicators like the RSI and MACD, however, have failed to confirm that upturn. The box on top of Chart 12 show the two MACD lines turning negative in late December, and remain so. The last time that happened in August (and April), the market underwent a pullback lasting two to three months. The last market upturn in early November coincided with an upturn in the MACD lines. Current weakness in short-term momentum indicators may simply be signalling a period of relatively choppy trading within the context of a major uptrend. It would take a price drop below the 50-day line and the early January intra-day low (2233) to signal the start of a downside correction.
