A quick check of Monday's weakest and strongest sectors tells you all you need to know about what traders were thinking. Of the major sectors and indices I follow, the SPDR S&P Biotech ETF (XBI), iShares Russell 2000 Index (IWM), iShares U.S. Home Construction ETF (ITB), PowerShares QQQ ETF (QQQ) and SPDR S&P Bank ETF (KBE) were the strongest. While the Utilities Select Sector SPDR ETF (XLU), Consumer Staples Select Sector SPDR ETF (XLP), iShares Dow Jones U.S. Real Estate ETF (IYR), and Energy Select Sector SPDR ETF (XLE) were the weakest.
If we broaden our timeframe to include all trading year-to-date (YTD), we find Monday's strongest performers are the weakest YTD performers. And those that under performed on Monday are the market's standout YTD winners. That bottom line is that Monday trading was largely about selling the recent winners (those stocks that are defensive in nature), and rotating into that which has been killed over the past six to 12 weeks.
Away from the notable winners and losers of 2014, two additional sector ETFs that have flown under the radar this year surged higher to close at new all-time highs. While traders where gawking at the rebounds in the FireEyes (FEYE) and WorkDays (WDAY) of the world, shares of the Materials Select Sector SPDR Fund (XLB) and Industrial Select Sector SPDR Fund (XLI) were quickly registering new highs.
As far as individual performers are concerned, the XLB has been led higher by out performance in Alcoa (AA), LyondellBasell Industries (LYB) and Allegheny Technologies (ATI). While the XLI has surged higher on the backs of General Dynamics (GD), 3M (MMM), Illinois Tool Works (ITW), Cummins (CMI) and Dover Corp (DOV).
If you're interested in tracking a name rarely mentioned in the media, but that's both technically strong and a component of the XLI, take a gander at Nielsen Holdings (NLSN). Shares of NLSN have traded sideways for the past nine days as it continues to consolidate its 9% move from mid- to late-April, and in my view, looks ready to emerge higher from its bull flag. As long as NLSN holds above 46.25 (roughly a dollar from Monday's closing print), I'd look for this stock to resume its bullish trend.
Given Monday's bullish drive higher, the odds favor a relatively strong, though range-bound market. With that in mind, my baseline expectation for Tuesday's SPY trading is generally bullish action as long as the ETF remains above $189.50. Failure to hold that line doesn't doom Monday's breakout buyer, but it does increase his chances of being forced to endure some backing and filling toward $189 to $189.20.
This won't win me any favors with the short selling crowd, but barring a complete collapse back beneath $188.65 to $188.75, I see no reason to question Monday's upside breakout. I suspect our near-term trajectory has us destined for a push toward 1910 on the E-mini S&P 500 futures.
1. RealMoney Pro's Doug Kass began writing (and buying) about Baxter (BAX) in late-March following the company's announced plan to split into two parts. While Doug's analysis is no doubt fundamentally driven, I believe the technicals are on his side as well. Keep in mind that a slide back down through $73.50 would likely snuff out the stock's bullish momentum. But I'm looking for a session close above the March 27 high of $75.68 to trigger another push higher. I am currently long BAX and intend to add to the stock on further strength.
2. I first highlighted Freeport-McMoran (FCX) when it broke through $34, and like many stocks in the materials sector, I believe this stock has further to run on the upside. Fibonacci aficionados may have noticed that FCX failed to recapture (on Monday) the 61.8% retracement of the early-January to early-February drop. But Fibonacci hocus-pocus aside, I still believe FCX can work its way back toward $38. One last thing to keep in mind is that bullish talk out of China will likely keep a bid under copper futures, and that is obviously a clear benefit for shares of FCX.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my twitter feed @ByrneRWS