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New Leaders Emerging

As interest rates rise and Technology and growth stocks undergo consolidations, money is rotating into other sectors within the S&P 500 Index. Shares of Energy, Materials, Industrials, and Healthcare stocks appear to be emerging to take over leadership roles, at least from a near-to-medium-term perspective.


Although the central bank may soon stop raising interest rates, the future of inflation remains unknown. The supply and demand equilibrium in commodity prices remains volatile, specifically in energy prices, influenced by unstable geopolitical events in Ukraine/Russia and the Middle East (Iran).


The intermediate-to-long-term trends for US stocks remain up. However, the short-term trend has weakened as market breadth and price momentum have cooled in recent weeks. SPX and other stock market indexes are likely headed toward consolidations (5%-10% declines) into the seasonality weakness period from late August to September.


The market volatility may lead to rotations into sectors that may not have fully participated in Oct 2022/Mar 2023 to present rally or in value-related sectors, offering better risk-reward potentials. The recent weakness in the Technology, Communication Services, and growth areas has created buying opportunities in emerging S&P sectors.

The Relative Rotation Graph (RRG) for the eight (8) weeks ending on August 14, 2023, shows Technology (XLK) and Communication Services (XLC) deteriorating within the Weakening Quadrant. Six (6) S&P sectors show significant improvements within the Improving Quadrant, specifically Energy (XLE), Materials (XLB), Industrials (XLI), and Healthcare (XLV).


The SCTR study also shows XLE (95.5), XLI (77.0), and XLV (74.9) ranked high within SCTR scores.


Large technical bases have also been developing in XLE, XLV, and XLB over the past year, suggesting the potential for significant breakouts into the end of the year.


Investors and traders looking to diversify into the four emerging sectors may want to buy the following names:


In the Energy (XLE) sector, twenty-one (21) stocks show intermediate-term uptrends trading above the 50-day and 200-day moving averages. Ranked by SCTR scores are EQT (97.6), MPC (95.4), APA (93.4), PSX (91.8), PXD (91.2), CTRA (90.5), TRGP (89.9), HES (88.3), COP (85.2), BKR (84.4), WMB (83.9), HAL (82.6), SLB (82.2), FANG (82.0), EOG (79.9), VLO (78.7), OXY (67.6), MRO (66.8), and XOM (61.3).


In the Healthcare (XLV) sector, sixteen (16) stocks show intermediate-term uptrends trading above the 50-day and 200-day moving averages. Ranked by SCTR scores are LLY (99.5), WST (93.1), AMGN (92.8), BDX (84.1), STE (83.0), REGN (82.8), JNJ (81.5), VTR (81.3), MCK (80.7), ALGN (77.9), ZTS (75.0), ABBV (70.7), MOH (67.7), MRK (66.6), DHR (59.2), and LH (58.0).


In the Materials (XLB) sector, nine (9) stocks are trading above the 50-day and 200-day moving averages. Ranked by SCTR scores are SHW (86.6), PKG (77.4), NUE (71.8), LYB (71.5), WRK (67.1), DD (66.9), IP (52.4), AVY (51.3), and DOW (50.2).


In the Industrial (XLI) sector, twenty-nine (29) stocks are trading above the 50-day and 200-day moving averages. Ranked by SCTR scores are GE (95.1), ETN (94.6), BR (94.4), PWR (94.1), FDX (93.9), VRSK (93.3), CAT (90.4), PNR (89.3), EMR (87.7), ADP (87.1), ODFL (87.7), CARR (86.4), FTV (86.1), PH (85.1), IR (84.9), J (84.2), UNP (82.5), PCR (81.2), TT (76.9), BA (75.8), FAST (75.4), WAB (74.8), TXT (73.3), URI (70.4), PAYX (70.3), LDOS (66.4), AXON (64.8), DE (64.1), and JBHT (59.5).


Source: Chart courtesy of StockCharts.com
Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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