By Ryan Redfern, CMT, ChFC
1/ S&P500 Sector Review
2/ Semis Look Tradable
3/ Seasonality for Semis
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1/
S&P500 Sector Review
As expected from yesterday, based on Seasonality, current S&P 500 Sector Trends, and NAAIM Sentiment – Monday turned out to be a pretty good day.
Two more S&P500 sectors turned positive on their 14 period DMI’s. Welcome to the party, Healthcare and Utilities! This makes the Positive to Negative sector count 9 to 2. This is building a great case to be long the S&P500 index right now and to expect continued strength in the near-term.
I know traditionally the ADX number is used to determine trend if it is above a certain number (many use 20 or 25 as a factor). But I’ve found it more useful to know if the line is rising or falling. So here is that data in Optuma Watchlist form. The “Slope” column is telling me if the ADX line is rising or not.
Courtesy of Optuma
2/
Semis Look Tradable
I’m a fan of “keeping it simple” when it comes to charts. Going through the CMT program really helped me pare down the information to a few basic factors to consider and not having charts be full of redundant indicators. My favorites are based on Momentum and Trend. I get myself into trouble when I try to play the mean-reversion game, so I tend to pass on that thinking.
My typical chart bars are candles (hollow up-bars – I blame Matthew Verdouw for this) with RRG Trend colors on the chart. This helps me to know if my “ducks” are in a row. Or at least, where they are in the pond and where they might be heading next.
I also include a 21ema (white line), to see price relative to the prior month of trading. I ask, is this trending up or down? I also add either DMI or MACD (often modified, but that’s for another day) – but rarely both.
Today, I am looking at the Semiconductor ETF – SMH (main holdings being NVIDIA, Taiwan Semi, Broadcom, and AMD). It has been very trade-able this year. Less so as a buy-and-hold, as I can’t stomach the almost 25% drawdown it had in July while even the more volatile QQQs were only down -13.5% for the same period. So investors/traders need to be cautious with this one.
All of my “factors” are positive and have been for a little while: DMI is positive with rising ADX Slope, price is trending above a rising 21ema, and the bars are green meaning on the RRG chart this “duck” is in the “Leading” box compared to TBills on both Relative Strength and Momentum.
Courtesy of Optuma
3/
Seasonality for Semis
This is where, again, Seasonality can be your secret weapon when it agrees with trend. When looking at SMH (Semiconductor ETF) in this light, there is a clear tendency for this sector to rise from October through November. In fact, over the past 10 years (chart says 11, but it does not yet include 2024), this sector was up 90% of the time during that period, with an average return of 9.68%. I like those odds.
But again, I wait until trend signals or the right set-ups occur to take advantage of this. I’ve been in this trade since early last week. I imagine you can spot the entry from looking at my three charts from today.
Courtesy of Seasonax
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Originally posted 15th October 2024
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