Look for These Two Sectors of the S&P 500 to Keep Growing

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On Thursday the Dow Jones Industrials ended a nine-session winning streak on modest volume. Record highs were made on seven of those advances.

Few traders were surprised by the pullback, in that the recent two-week rally resulted in the Dow advancing 6.7% for the year. At the end of June the major indices were flat for the year. But the Dow Jones Transportation Average led the way lower, down 1.30%, with the airlines underperforming.

Southwest Airlines Co (NYSE:LUV) fell 11% following management’s warning of slowing revenue growth. Delta Air Lines, Inc. (NYSE:DAL) lost 4.2%, and United Continental Holdings Inc (NYSE:UAL) fell 3.4%.

Crude oil fell 2.2% to $44.75/bbl. dragging energy stocks down with it. Exxon Mobil Corporation (NYSE:XOM) fell 0.09%, Occidental Petroleum Corporation (NYSE:OXY) lost 0.81% and Chevron Corporation (NYSE:CVX) fell 0.19%.

The European Central Bank signaled that more stimulus may be needed to boost European economies. Thus gold (August) rose 0.9% to $1,331/oz.

At the close, the Dow Jones Industrial Average was off 78 points at 18,517, the S&P 500 fell 8 to close at 2,165, Nasdaq lost 16 points at 5,074, and the Russell 2000 fell 6 points, closing at 1,204. The NYSE’s primary exchange traded 822 million shares with total volume of 3.4 billion shares, and Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 1.4-to-1, and on Nasdaq decliners led by 1.7-to-1. Blocks on the NYSE increased slightly to 7,660 from 7,454 on Wednesday.

I am often asked, “What sectors should I buy now?” The presumption, and it is valid, is that stocks that make new highs will continue to make new highs. (I know, until they don’t.) But stats show that some groups are especially subject to large momentum swings. Here are two long-term charts on sectors that are in long-term bull markets.

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Chart Key

The technology sector is a favorite of institutional investors and traders alike. Note the recent breakout and strong long-term MACD indicator. If volatility is not a concern, then consider this sector for investment now. Technology is the leading group now after meandering for almost a year.

health-care-not-breakout-but-w-is-good
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One of the most powerful pre-breakout indicators on long-term charts is the “W” formation. Healthcare is assumed to be a defensive group; however, its sub-sector — biotechnology — is more aggressive and almost always the beneficiary of institutional buying.

Conclusion

The technology and healthcare sectors almost always outperform in bull markets. Group rotation — i.e., when one sector becomes expensive institutions tend to go to a less expensive one (measured by the price-to-earnings ratio) — benefits the stocks in these groups. I’ll spend most of next week discussing some of the favorite stocks in these two major bull market sectors.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/look-for-these-two-sectors-of-the-sp-500-to-keep-growing/.

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