Above The 40 – A Scramble To Catch Up As Stock Market Flips Overbought

With complacency running high, the environment is ripe for bottom-fishing and playing catch-up with the stock market with more speculative names. Some of the charts below show this scramble is well underway. They provide evidence that the stock market may be ready to sustain this overbought period even while the S&P 500 did not deliver a ringing endorsement.

CHART REVIEWS

Consumer Staples Select Sector SPDR ETF (XLP)

Consumer staples failed to participate in the market’s recovery attempts from the February swoon. Fortunes started to change ever so subtly in May with XLP making a bottom and then grinding ever so slowly higher. XLP finally broke resistance at its 50DMA on Friday and buyers followed-through on Monday  in convincing fashion. XLP should be a good place to check on the health of the overbought period. It is catch-up time.

The Consumer Staples Select Sector SPDR ETF (XLP) gained 0.8% as buyers pushed XLP above its downtrending 50DMA for the first time since February.

The Consumer Staples Select Sector SPDR ETF (XLP) gained 0.8% as buyers pushed XLP above its downtrending 50DMA for the first time since February.

Industrial Select Sector SPDR ETF (XLI)

The stock market rally has also left behind industrials. XLI is doing better than XLP, but the index still has two other points of resistance from prior highs before it can challenge its all-time high from February. Monday’s 3-month closing high marginally confirms support at the now uptrending 50DMA.

The Industrial Select Sector SPDR ETF (XLI) only gained 0.2% but it was good enough for a 3-month high.

The Industrial Select Sector SPDR ETF (XLI) only gained 0.2% but it was good enough for a 3-month high.

Financial Select Sector SPDR ETF (XLF)

Financials are important laggards since the S&P 500 topped out in February. On the positive side, XLF convincingly held support at its 200DMA. A close above the May high should act as a confirmation of the market’s bullish potential.

The Financial Select Sector SPDR ETF (XLF) disappointed by failing to join the party. XLF lost 0.2%.

The Financial Select Sector SPDR ETF (XLF) disappointed by failing to join the party. XLF lost 0.2%.

Best Buy (BBY)

BBY had a disastrous earnings report last month. Sellers were not able to pressure the stock into a lower low and now buyers are taking back control. With retail stocks resurgent and finally acting out my 2018 recovery thesis, BBY is an archetype catch-up stock. The stock closed right on its 50DMA resistance (yep, cannot make this stuff up!). A close above yesterday’s intraday high confirms the return of bullishness for BBY and should further confirm bullish stock market sentiment.

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Disclosure: Long UVXY calls.

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