2023-11-08 11:15:09 ET
Summary
- SPDR® S&P 500 ETF Trust had its best weekly return of 2023, with advancing stocks outpacing declining stocks.
- The double-barreled oversold signal that helped build positions may no longer be effective, requiring more selective buying.
- Energy, industrials, financials, services, and technology are the best sectors to target for investment.
The double-barreled oversold signal discussed here and here likely helped many build positions ahead of last week's sizable market rally in the S&P 500 Index (SP500). Last week's 6% gain in the SPDR® S&P 500 ETF Trust (SPY) was the best weekly return of 2023.
But what really impressed was the breadth associated with the move.
Advancing stocks significantly outpaced declining stocks last week, triggering both a Whaley Breadth Thrust and a Zweig Breadth Thrust -- signals that often precede additional gains.
Clearly, we're off to a good start, but the "easy" money associated with buying indiscriminately because we were oversold may have been made. Now the stock market will have to prove that it can continue to climb on its own merit.
We are no longer double-barreled oversold
As we told members this weekend, as of Friday's close, we are no longer operating on our double-barreled buy signal.
The percentage of stocks in our custom 1,600 stock universe trading over 5% above the 200-day moving average is 25% (see chart below), back above 20%, and the average score in our universe is back above 50.
Stocks can continue climbing following our signal, but results are more mixed in the short term than the long term. As a result, investors should approach the SPY, Nasdaq 100 ( QQQ ), and Russell 2000 ( IWM ) more patiently.
It wouldn't be surprising if stocks gave back some of their recent gains, so investors will need to be more selective in picking what they want to buy and patient in accumulating positions.
Target stocks within these sectors
We rank every stock in our universe weekly across seven factors, including earnings beats, forward earnings growth, forward P/E to historical P/E, price and volume, short interest, insider buying, and seasonality.
Once we've scored the 1,600 stocks in our universe, we aggregate those scores by sector and market cap to help members decide which baskets they should over and underweight.
Our sector rankings can be used to manage exchange-traded funds, or investors can use our industry and individual stock scores to further narrow their watch lists.
For instance, the best sectors in our large cap universe this week include energy, industrials, financials, services, and technology.
Investors can selectively buy the relevant ETFs, Energy Select Sector SPDR® Fund ETF ( XLE ) or VanEck Oil Services ETF ( OIH ), Industrial Select Sector SPDR® Fund ETF ( XLI ), Financial Select Sector SPDR® Fund ETF ( XLF ), Consumer Discretionary Select Sector SPDR® Fund ETF ( XLY ), and Technology Select Sector SPDR® Fund ETF ( XLK ); ideally on down days.
Drilling more deeply, investors can focus their attention more precisely on ETFs and stocks within the strongest scoring industries in these top-rated sectors.
Equipment & services scores best in large cap energy. Building products, specialty business services, and industrial equipment are best in industrials, and insurance brokers, financial data & exchanges, and P&C insurers are top-scoring in financials.
The best large cap services baskets are apparel retail and travel services, while the top technology industries include computer hardware, and information technology services.
Investors should concentrate on the strongest stocks within each of those industries.
If you're hunting for ideas within these groups, our weekly report highlights many ideas within each one of them, such as Carlisle ( CSL ) in building products, Cintas ( CTAS ) in specialty business services, and Roper Technologies ( ROP ) in industrial equipment.
Other examples investors can consider include Brown & Brown ( BRO ) in insurance brokers, TJX Companies ( TJX ) or Ross Stores ( ROST ) in apparel retail, or Dell Computer ( DELL ) in computer hardware or Accenture ( ACN ) in information technology services.
If you're a mid-cap or small-cap investor, the sector and industry rankings differ, so consult our rankings rather than assume these sectors and industries should be your hunting ground.
Regardless, since we're no longer oversold, we suspect that we could see some better entries in the coming week as the market digests its recent move, so plan your entries accordingly.
For further details see:
SPY: Double-Barreled Buy Signal Works Again, Now What?