Group Overview:
Market participants were somewhat nervous early on, as futures were firmly lower to start 2019. The “first five days of January” indicator, which one should never make investment decisions based upon, states that the direction of the markets are determined by the fresh start of a new year. Obviously this was dispelled in 2018 as the averages finished mildly lower, even after the S&P 500 rose by nearly 3% between 1/2-8/18. Looking specifically at the industrials most of the individual subsectors were very soft. The homebuilders come to mind with the ITB still 35% off most recent 52 week highs, and the very important transports that still linger in bear market territory with the IYT off 21% from its own highs. GE will be looking for its first 4 week winning streak in more than THREE years, and it is higher by almost 7% this week headed into Thursday, so the likelihood is high. The XLI itself bounced strongly off the round 60 number on 12/26, and that low could be used as a stop for those looking to enter. One of the most breathtaking drops in the group in my opinion was that of XPO which slumped more than a quarter of its value alone on 12/13. It is now approaching that area after its own revised lower forecast Wednesday and the short seller announcement Thursday of that week. Line in the sand moment and it better have its 4 wheel drive function on if bulls want more capital appreciation.
Mexico Mojo?
The emerging markets did show respectable relative strength in the latter part of 2018, and Mexico seems like an intriguing region. Looking purely on its country ETF the EWW it seems to have found a floor recently higher 4 of the last 5 weeks with all CLOSING above the round 40 number. To be fair the best weekly advance was registered last week at a lukewarm 1.8%, and it recently recorded an 8 week losing streak the weeks ending between 10/5-11/23 over concerns with the new incoming administration. We all are aware moves overshoot on both the up and downside and below may be an interesting small cap name OMAB, an airport play from south of the border. The stock is 31% off most recent 52 week highs following a powerful 13 of 17 week winning streak the weeks ending between 6/8-9/28, but that was followed by an 11 week LOSING streak, before the last 2 rose by nearly a combined 17%. Is the name ready for a takeoff, pun intended?
Examples:
The round number theory continues to prove its worth, of course not 100% of the time like anything else in life or markets. The S&P 500 will have something to prove IF and when it hits the 2600 figure for example, a level that has influence dating back to last November, and had many weeks show support there. Obviously it cracked and one should watch with great interest what occurs there if tested. Below is the chart of an industrial play HSC, and how it appeared in our 12/20 report. It continues to hang around the very round 20 number which was the area of a weekly double bottom breakout late last February (remember the longer the base, the greater the probability of success upon breakout). On 9/13 the 30 number was precise resistance and this chart should be given the benefit of the doubt as it has been making higher highs and lows on its WEEKLY chart since July ’16.