As with several other key sectors, the action in high beta stocks the past few days suggests a successful test of its early April breakout level.
This post dovetails with yesterday’s regarding the Global Dow Index. In early April, the post-February global equity rally was tiring and in need of fresh fuel to give it a jump-start. That fuel came in the form of several previously lagging sectors of the market achieving key technical breakouts. These breakouts allowed the rally leaders to take a backseat and catch their breath while these new areas picked up the slack. One of these new contributors was the high beta segment of the market, as represented by the PowerShares S&P 500 High Beta ETF, ticker, SPHB.
Immediately following these breakouts, global equities enjoyed a nice drive higher over the next couple of weeks. That drive ran out of gas, however, about a month ago and equities began to pull back. Importantly, these new-found contributors retraced their entire post-breakout rallies. Over the past few weeks, we have documented how many of them – including high beta – returned to stage an important test of their breakout levels. Our feeling was that this test may very well determine whether the post-February stock market rally was ready to run again, or had run out of gas.
With the impressive bounce of the last few days, the answer is leaning strongly towards “ready to run again”. That is courtesy of several apparently successful tests on the part of the former laggards, including high beta stocks.
Note the early April breakout by the SPHB as it was able to leapfrog several key points of resistance, including
- The post-2011 Up trendline
- The Down trendline from the highs of a year ago.
- The 200-day moving average
The 200-week moving average
The SPHB’s run was short-lived, however, and the ETF returned over the past few weeks to the breakout spot. As the aforementioned key technical levels remained in this same vicinity, a successful hold there was crucial lest it lose the support of all those lines of significance. Again, as the chart reveals, the SPHB has responded very favorably, jumping off the multiple support lines by more than 3% the past two days.
As we said in yesterday’s post, this keeps the advantage on the bulls’ side for now. It also keeps the prospects of new rally highs – or all-time highs in some indices – very realistic. Now, we cannot switch it to autopilot and assume it’s off to the races now. It is still possible, despite the nice reaction the past few days, that these markets can turn tail and break back down through that support. Thus, we still need to manage risk, as is always the case.
However, the action in the high beta sector, among others, is extremely encouraging. And combined with continued strong breadth and skeptical sentiment, it is not surprising to see the equity rally get back on track.
More from Dana Lyons, JLFMI and My401kPro.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.