Three Sectors And Five Industry Groups Poised To Move Higher

Market Tentatively Triggers a Long-Term Buy Signal

Chart 1 features a Coppock indicator for the NYSE Composite, which triggers buy signals by reversing to the upside from a position at or below the equilibrium level. Since 1970, there have been thirteen such signals and only one failure (in 2002). That's not a bad record. Success, in this case, is earned when the subsequent upward price action extends for at least a year. It now looks as though a fourteenth bull signal has been triggered. If this one is valid, and there are few reasons to doubt that it is, that will mean that, once the NYA experiences a decisive breakout from its 2017-19 consolidation, the market should experience a meaningful extension to the  secular bull market that began in 2009. We have already seen several defensive sectors, such as Utilities, REITS and Staples lead the way, but this Coppock buy signal suggests that others should be poised to follow in their footsteps as leadership transitions to some of the lagging sectors. I am certainly not saying that the sectors featured here are the only ones poised to move higher, but I like them because they have either already broken out from a multi-year consolidation pattern or look close to doing so.

Chart 1

Financials Starting to Break Out

Chart 2 features the iShares Dow Jones Financial sector (IYF). I am spotlighting this ETF compared to the SPDR XLF because the IYF has already broken to the upside, whereas the XLF has no so far done so. All the remaining charts feature the same arrangement. I call this my "Nirvana" template because it gives me a quick bird's eye view of the primary trend technical structure, with price, momentum, relative price and relative momentum points of view. An ideal situation presents itself when the price and relative action both break to the upside and are supported by the two KSTs reversing in a northerly direction as well. We saw such a combination form in late 2016. This setup was followed by a strong rally in the price and a jump in relative action. That RS line has been trading in a sideways pattern since early 2017, meaning that financials have been performing at about the same pace as the S&P during that period. Since the RS line is still trading below the green resistance trend line, we can't say that it is bullish, but, given the flattening relative KST, it does look poised to break to the upside as the price has already done.

Chart 2

Insurance is an important component of the financial sector. Chart 2 shows that the iShares U.S. Insurance ETF (IAK) has also broken out. The IAK's upside trajectory appears to be sharper than for the IYF. Relative action is still contained by the green resistance trend line. In this case, though, both KSTs have crossed above their respective EMAs, thereby placing the overall technical position in a stronger position than the IYF. All that we need is a break above the RS resistance line to send this industry group off to the races.

Chart 3

Mortgage Finance is another promising industry group, having broken out on an absolute price basis. It is also experiencing a freshly minted absolute and relative KST buy signal, which suggests that the 2014-19 down trend line in relative action will soon be bettered on the upside.

Chart 4

Basic Materials Look Interesting

The SPDR Basic Materials (XLB) has tentatively completed a reverse head-and-shoulder and its absolute KST is extremely close to crossing above its EMA. Relative action is also poised to break out. It's already broken above its 2018-2019 down trendline, and needs only a small advance to clear its 65-week EMA.

Chart 5

Two Materials components are Gold Mining and Containers & Packaging. They are featured in Charts 6 and 7.

Firstly, the Van Eck Vectors Gold Miners ETF (GDX) has broken out on both an absolute and relative basis. This is also being supported by the two KSTs. What's not to like?

Chart 6

Containers & Packaging has also broken out and is being supported by the long-term absolute KST. Relative action is still contained below its green resistance trend line but is likely to move above it, as the relative KST is in the early phase of a bull market.

Chart 7

Industrials Starting to Improve

The SPDR industrials (XLI) include transports, which have been acting as a bit of a drag. The iShares Industrials (IYJ), on the other hand, do not, so this vehicle is a bit more of a pure play. The price of this ETF has just now begun to emerge from its 2017-19 consolidation. The KST is not yet bullish, but has already started to turn to the upside. On the other hand, the relative KST is positive. The RS line, meanwhile, is still below the green resistance trend line. This one has turned back numerous rallies over the last couple of years, so its violation would indicate a likely significant move, such as that seen in early 2016.

Chart 8

One emerging industrial component is Building Materials, as featured in Chart 9. Here, we can see that the Index has broken out on both an absolute and relative basis. Both series are also trading comfortably above their respective 65-week EMA and each is sporting a long-term KST, which is in an early bull market phase.

Chart 9

Good luck and good charting, Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.