Where Is Relative Strength?

Hey 5-Star Trader,

As a self-made trader, I understand firsthand the power of collaboration. Throughout the years, I’ve had the opportunity to learn from a great, John Carter, and was even asked to join his team of seasoned traders! For this week’s episode, I’m calling on another great, fellow Simpler Trading team member, Mary Ellen McGonagle.

For those unfamiliar with Mary Ellen, she has a very impressive track record. She started her career at the ripe age of 21 when she went to work on Wall Street right out of college as an assistant on the Fixed Income trading desk at Goldman Sachs. After growing her impressive career, Simpler Trading was lucky enough to cross paths with her. Shortly thereafter, she joined our team and is now acting Senior Managing Director of Stocks! Twice a week she sends in-depth reports with actionable insights.

Let’s jump in with her thoughts… 

Yesterday, in her MEM Edge Report, Mary Ellen reviewed last week’s price action in the markets.

Losses within the S&P 500 were broad-based with Financials and Consumer Discretionary stocks among the biggest losers while defensive areas such as Consumer Staples and Utility stocks held in better than the markets.

Overall, Value stocks – those with a low price relative to their earnings – are continuing to be favored. (using ETF’s VUG vs VTV)  This is typical during periods of high inflation and rising interest rates such as the current environment.

The Nasdaq was down a bit more with a 2.8% decline that pushed this Index further into bear market territory as it’s now 26% below its November peak in price.  With the RSI and Stochastics in negative territory, we remain negative on the prospects for this Index as well.

Among the 2500 stocks that are listed in the Nasdaq Composite Index, only 12 percent are above their 50-day moving average. A move above this key area of upside resistance (its 50-day mav) would be a key step in reversing the current downtrend that’s taking place in the majority of Nasdaq stocks.

Weekly Chart Of Percent of Stocks Above 50-Day Moving Average

Earnings season is almost behind us and not all the news is poor among companies that have released their quarterly results. 

The Energy sector has reported the highest year-over-year earnings growth among the 11 sectors in the S&P 500 due to higher oil prices while select Metals and Agricultural areas are also reporting strong numbers.

These commodity stocks tend to outperform during periods of high inflation.

Among the Energy stocks on our Suggested Holdings List, Occidental (OXY) continues to stand out after reporting strong quarterly earnings last week followed by news that Warren Buffet continues to add to his position in the stock. 

OXY was the top performer in the S&P 500 Index today and we continue to view it as a top pick with further near-term upside ahead.

With inflation fears dominating the markets, investors will be closely monitoring Fed Chair Powell’s comments tomorrow at the WSJ conference. Until we see signs that inflation has peaked which in turn will lower anxiety surrounding the Fed’s path to fighting inflation, we expect volatility to remain elevated.

-Danielle =)

If you enjoyed Mary Ellen’s analysis, join her premium MEM Edge Report! You can try it for 30 days for only $7!

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