Market review 22.11.27
Banks, Pharma, Railroads, and more.
Hello everyone,
There’s been a lot of bullish developments for the equity market in recent weeks.
Several long-term support levels held over the past few months in various countries and sectors. Now we’re seeing fresh breakouts to new highs in more and more sectors.
Let’s explore.
Global equities
The German DAX index is reclaiming 5-year support:
Japan is a country that I highlighted back in July. The unhedged Japan ETF (EWJ) hit 26-year support last month before seeing a nice bounce.
This week, Japan small-caps made a decisive breakout:
India’s Nifty 50 is inching higher after a recent breakout:
Canada vs. US is also looking interesting.
With Canada having a higher weighting in resource sectors, the SPY:EWC ratio has closely tracked SPY:XLE over the past 25 years. The latter broke down about a year ago, and so it will be interesting to see if Canada outperforms the US from here.
Dividend / Value stocks
Continuing with Canada, one of our main dividend ETFs (XDV) is showing strength after recovering an 8-year support level:
Not to be outdone, the RDIV dividend ETF in the US has made a breakout to new highs:
In the same July post where I discussed Japan, we looked at the shareholder yield factor. Studies going back to the 1960’s show that the top 10% of companies by shareholder yield outperformed the broader market by 3.5% annually, while the bottom 10% underperformed by 7.5%. That’s hard to ignore.
Below is the monthly chart for the Cambria Shareholder Yield ETF (SYLD). It’s been consolidating nicely within a strong uptrend.
The top sector allocations in SYLD are energy, financials, materials, industrials, and healthcare. These are all the sectors that stand out to me right now and I’ll discuss each one separately below.
But before doing so, I want to point out that SYLD has not only outperformed SPY over the past 1-, 3-, and 5-years, but also since inception almost 10 years ago. This is very impressive considering that value and dividend stocks were laggards between 2007-2021. I’ll show you the similar outperformance in railroads later in this post.
Onwards.
Financials
Among the universe of 7,000+ stocks on FinViz, 92 made news highs on Friday. Of those, 24 were financials.
Here’s the insurance sub-group (IAK) with a breakout this week.
The bigger and broader XLF ETF has recovered a key support level.
Back in July, I pointed out when JPM hit major support. It retested that support again in Sept before rallying over 20%. Similarly, BLK (the Russell 1000 stock with the highest correlation to the S&P 500) is up nearly 50% after hitting long-term support:
Health care
Last month, there was a confirmed failed breakdown in the big pharma ETF (IHE).
Over a year ago, I wrote about how individual big pharma names looked attractive. Stocks like LLY and MRK continue to be winners. Just look at the chart below and tell me we’re in a bear market.
Within the more speculative biotech space, individual stocks are all over the place. However, the broader biotech ETF (IBB) has recovered 7-year support.
Industrials: Railroads
Isn’t it interesting that with all the fears of a recession looming near, CP Rail is near 52-week highs? Watch this one for a breakout.
Also, how would you feel if I told you that over the past 20 years, railroads have outperformed QQQ?
To add emphasis, this chart:
Excludes dividends, which give railroads even more outperformance.
Begins after QQQ fell 74% from its Mar ‘00 highs (while railroads gained 39%).
Is over a time period when the internet changed our lives. The handful of companies that led the digital transformation built moats in search, e-commerce, cloud, and devices. They fuelled QQQ higher and by last year, comprised half of the index.
Is over a time period of falling interest rates, which turbo-charged the growth vs. value ratio.
It’s not just railroads. One can find many unexpected stocks and subgroups that outperformed QQQ over the past 20 years. For example, Domino’s Pizza: DPZ. This is the reason we follow relative strength, wherever it might be, and without bias.
Materials & Homebuilders
We’ve been looking at materials repeatedly on this blog as they hit major multi-decade support. Now, various steel stocks are making breakouts.
Below is a weekly chart of CMC. See also charts for RS, STLD, and TS.
Home builders continue to hold major support dating back to 2005:
Energy
BTU, the largest coal stock, made a breakout this week:
Oil had another down week, however oil stocks continue to hold up well. Here’s small-cap energy stocks vs. crude oil. This ratio is rallying after a recent 3-year base breakout.
Back in Aug, I discussed how oil simply needs to remain elevated (eg. WTI crude oil above $70 per barrel) for oil stocks to do well.
Closing Notes
JC summarizes it well:
There are plenty of blue-chip stocks in different sectors with excellent monthly charts. This includes CP, MRK, WCN, JPM, STLD, WPM, ENB, CNQ, etc.
I like to instead simplify my life with ETFs. The discussion in this post shows how the market is giving us great opportunities to build a simple, diversified portfolio in several sectors.
That’s all for this week! If you found this post useful, please give it a like and share. Thanks for reading.
Twitter: @alphacharts.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.