The US stock market is off to a strong start as S&P 500 Index has gained +0.84% on the first trading day of the New Year. S&P 500 Technology is again outperforming the benchmark index and its peers with gains of 1.88% today. Economically sensitive sectors including Industrial and Consumer Discretionary sectors continue to be favorable as they are up +1.89% and 1.19%, respectively. Financials is also outperforming SPX recording gains of 0.97% today. The defensive sectors continue to lag their counterparts to start the year declining -0.79% to -1.25%.
The leadership S&P sectors that led last year continue to show strong relative strength and price momentum to start the New Year. Please refer to the RRG chart below for further information. This is important as the top three market-cap weighted S&P 500 sectors including S&P Technology (23.2% mkt cap), Healthcare (14.2%), and Financials (13%) account for over 50% of the overall SPX by market capitalization.
Although the 2019 S&P sector leaders and the leadership stocks within each of the respective S&P sectors will likely trend higher into 2020, if market breadth continues to broaden it is reasonable to expect other names will begin to emerge to take over leadership roles. Individual names residing within the improving quadrant of the RRG charts may be ideal candidates since these stocks are not technically extended and most important, are showing technical signs of improving relative strength and price momentum. The lagging names from last year may quickly attract interests as investors and traders seek out favorable risk/reward situations throughout the course of the year.
Enclosed below are the Relative Rotation Graphs (RRG) of the technically improving stocks within S&P Technology (XLK), Healthcare (XLV), and Financials (XLF). Also attached are charts of individual names along with their technical projections based on technical breakouts and risk levels.
Note that most of these stocks reside within the improving RRG quadrant and most have been undergoing significant technical basing patterns over the past year or so. In another words, these are technical value names residing in strong S&P sectors and offering favorable upside potentials at reasonable downside risks.
As the famous saying “apple doesn’t fall far from the tree” then it could be said technical value stocks have the inherent traits to become attractive growth stocks, especially when they breakout of their respective technical bases.