Last Friday, we received one of the arguably two most watched economic data points for the month December, i.e. the November jobs report. The headline number came in better than expected although average hourly earnings didn’t please the inflation crowd. Never the less, indices like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) were pleased with the news and closed the week on a high note.
The next major data point for December will hit the wires this Wednesday as the Federal Reserve is likely to announce yet another rate hike. More important than the Fed headline itself will be their outlook in regards to inflation etc, and what that means for their expected path of rate hikes in 2018.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
All of this means that for yours truly, this will be another week to closely watch the financial sector of stocks, particularly the banks as represented by the KBW Nasdaq Bank Index, which has seen a good rally already since September.
On the chart, we see that after a re-test of the top end of the previous sideways consolidation phase (blue box) in October the BKX index has since pushed higher still in what through the lens of technical analysis is a near textbook bullish move.
Furthermore, note that the blue line, which represents the relative strength of the banking stocks in relation to the SPY ETF, has also broken higher, which is to say that banking stocks are now showing both absolute and relative strength.
I currently expect this type of price action to continue well into the first quarter of next year all else being equal.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Another sector that continues to look attractive from the long side to yours truly is healthcare as represented by the Health Care SPDR (ETF) (NYSEARCA:XLV). On the below chart I plotted the XLV in the top half and a sub-segment of healthcare, i.e. biotechnology stocks as represented by the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) at the bottom.
Last Friday, the XLV bounced 1.12% which resulted in it holding its major technical support line. Ditto for the IBB ETF, after an intra-week scare last week it bounced off horizontal support. From here the path of least resistance looks higher but any daily closes below last week’s respective lows would be a sign of trouble and a last resort stop loss signal for trades.
In summary, the Fed meeting is arguably this week’s (and one of December’s) most important data points. If we can get past this event (all else being equal) U.S. stocks should continue to get a bid into year-end with financials and healthcare participating in the move.
Check out Serge’s Trade of the Day for Dec. 11.
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.
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