Seven Stocks and Seven Sectors to Watch
Charting Starbucks, Eli Lilly, gold miners, airlines, AT&T, Walmart and more.
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Cleared for Takeoff
The airline industry has been a mediocre investment for years. Over the past five years, shares of American Airlines have lost 58% of their value. Over that same period, shares of United Airlines have lost 19% and Delta shareholders are breaking even.
After languishing for years, airline stocks are taking off. The U.S. Global Jets ETF JETS has gained 36% since August 5.
JETS (left chart below) just experienced a significant moving average crossover (green arrow) known as a "golden cross." JETS’ rising 50-day MA (blue) crossed above its rising 200-day MA (red) on Wednesday to create the bullish signal.
On the right, we have the largest holding in the JETS ETF, United Airlines UAL. Shares of United have nearly doubled since bottoming on August 5. Both JETS and UAL held up well on Wednesday despite a vicious market selloff.
Home Sweet Home?
Homebuilders are caught in a tough spot, as mortgage rates and treasury yields have soared.
According to Mortgage News Daily, a 30-year fixed rate mortgage is averaging 6.92%, up from 6.11% in mid-September.
How quickly did the homebuilders turn? On Friday, the SPDR Series Trust Homebuilders ETF XHB closed at an all-time high. By Wednesday, XHB (left chart) had fallen below its 50-day moving average (blue).
Fort Washington, PA-based Toll Brothers TOL also closed at an all-time high on Friday, but fell below its 50-day moving average (blue) by Wednesday. Based on the speed and ferocity of this reversal, I’d like to see the homebuilders put in a foundation before opening the door to a new trade.
Consumer Discretion Advised
The consumer discretionary sector, represented by the SPDR Consumer Discretionary ETF XLY, has been slipping over the past month. XLY (left chart) appears to be forming a double top pattern (shaded yellow), an indication that the path of least resistance is lower.
Starbucks (SBUX, right chart) missed earnings and revenue targets on Tuesday, but the stock fought back after gapping lower. The market believes in new CEO Brian Niccol, who worked wonders at Chipotle Mexican Grill CMG.
I’m holding long-term puts on Starbucks (right chart). Not because of Niccol, but because consumers who are struggling to pay for eggs are less likely to pay $8 for a cup of coffee.
Pharma: Eli Lilly's Rally Getting Thinner?
The S&P Pharmaceutical ETF XPH (left chart) reached an all-time high last week (green arrow). XPH is holding up despite the underperformance of names like Merck, down 5.8% year-to-date, and GSK, which has gained just 1% this year.
XPH component Eli Lilly LLY, which has gained 714% over the past five years, may have finally run out of steam. Lilly (right chart) has formed a bearish triple-top pattern (red arrows), and has fallen below its 50-day moving average (blue).
Digging the Gold Miners
The VanEck Gold Miners ETF GDX closed at a 52-week high (point A) on Tuesday before pulling back on Wednesday. Despite the retreat, the mining ETF (left chart) has gained over 12% since October 9 (point B), and over 21.5% since September 6 (point C).
Newmont Mining NEM (right chart) is demonstrating good relative strength when compared to GDX. Notice how Newmont has stayed above its 50-day moving average (blue) since June, while GDX has fallen below that key indicator on numerous occasions.
Communication Sector
Communications continues to be one of the hottest sectors in the market. The Communications Services SPDR ETF XLC (left chart) reached a fresh all-time high last week.
XLC component AT&T T (right chart) gained over 4% in a weak market on Wednesday to reach a three-year high. AT&T beat earnings estimates, but came in just shy of revenue expectations. Phone subscriptions and mobility services were strong, and AT&T management reiterated full-year guidance.
Retail Fail?
The SPDR Retail Sector ETF XRT (left chart) has been trapped in a sideways range for the past six months. XRT is underperforming the major indexes, gaining just 4.8% year to date.
Meanwhile, Walmart WMT jumped 1.5% to an all-time high on Wednesday. The world's largest retailer continues to benefit from strong growth in online sales. Walmart is scheduled to report earnings on November 19.
At the time of publication, Ponsi was long WMT and SBUX puts.
