Market Radar 21. February 2023


Pre-Opening, the bulls are declared war

Pre-Opening, the major US stock indices are trading after the long weekend – in the USA Wall Street was closed due to the holiday “Presidents Day” on Monday – about the level of Friday’s lows (as of 10:30 a.m. German time).

While at the end of the week of the 6th calendar week 2023 (10 February) we were able to locate higher highs and higher lows in the charts of the major US stock indices (S&P 500, Nasdaq 100, Russell 2000) and wrote accordingly in the market radar that we “can only advise to buy when weak” (see Market Radar of 13 February), we saw at the end of the week of the 7th calendar week (17 February), these higher highs and higher lows no longer.

Instead, lower intermediate highs formed in the calendar week just ended between Tuesday and Thursday.

For the corresponding ETFs, the S&P 500 (SPY) would have to close above 415.05, the Nasdaq 100 (QQQ) over 309.27 and the Russell 2000 (IWM) above 194.87 for the bulls to invite them back to the party.

As long as we do not hear such a “champagne cork pop”, investors should at least take into account a longer sideways movement or even an incipient correction on the stock markets.

Pre-IPO, the bulls seem to be declared the fight: In the ETF of the S&P 500 (SPY), it is now important to observe whether buying pressure arises at the 400 mark. I can well imagine that if we trigger this brand today, a counter-movement will start. However, if the 400 mark is fallen below with force in the next few trading days, it would turn from a support zone into a resistance zone.

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What do we see under the radar of the major stock indices?

Some risk-off industries will be upgraded
If an industry that has recently been one of the underperformers shows short-term strength, stock market participants who want to participate in future sector rotations at an early stage – i.e. before the masses do – should pay attention.

At today’s opening of trading on Wall Street, Market Radar reports to me that three industry ETFs are receiving day stamps that include an upgrade: Healthcare Providers (IHF), Healthcare (XLY) and Utilities (XLU). All three sectors are considered risk-off candidates and have recorded little or no price gains since the beginning of the year.

Thus, the market radar gives us a warning signal for market participants, who are predominantly invested in stocks from risk-on industries.
From Tuesday, the ETF for energy suppliers will receive the daily stamp “Under observation” (previously: wait and see or speculate on sell-off”).

The ETF for Healthcare (XLV) will be upgraded from “Under Observation” to Buy the Dip for Tuesday.
The ETF for healthcare providers (IHF) will even be upgraded to “buy or top-up” for Tuesday, after the daily stamp “bottoming or sideways” was previously assigned.

Healthcare providers under the microscope
Let’s take a closer look at healthcare providers – because this is where we’re currently seeing the most dynamic upgrade.

Of the past nine trading days, the ETF for Healthcare Providers (IHF) closed seven days with a gain. By comparison, the ETF for the S&P 500 (SPY) has only three days of gains over the past nine trading days. Trading volume was unremarkable in the IHF ETF during this time. A strong accumulation on the institutional side can therefore not yet be observed. On February 7, the IHF ETF reached a 21-day intraday low, but closed near daily highs that day. The trading volume was unspectacular on 7 February. Nevertheless, this rebound on a daily basis served as the starting signal for a 9-day rally. Around 270 US dollars, a resistance zone can now be located in the IHF chart, which the IHF ETF would have to overcome shortly so that the bottom formation can also be completed in the chart image. There is no w-formation yet. Therefore, a setback to a maximum of 260 US dollars (current price in the IEF ETF: 267.91 US dollars) would now be a constructive pullback to put the bottoming formation on an even more stable basis.
The two highest-weighted stocks in the IHF ETF are UnitedHealth Group (UNH; Weighting: 20.95%) and CVS Health Corporation (CVS; Weighting 12.99%). 

The United Health Group (UNH) is the largest health insurer in the USA and a principled buy and hold candidate. Corrections lasting several months, as we currently see in the chart of the United Health Group, had always been good opportunities in the past to buy a few pieces. Last Friday, the stock bucked the main trend by 2.42%, recouping losses incurred over the previous three days.

Now the stock is quoted at 499.08 US dollars. Overcoming the $500 mark could give the stock new momentum.

CVS Health Corporation (CVS) has sharply corrected since mid-December. Positive momentum only came with the quarterly results in the chart of the stock, which were reported pre-market on February 8 and received positively by the market. Therefore, medium-term investors who want to speculate that this industry saw a low on February 7, which will not be undercut so quickly, could find in the CVS Health Care share a quite interesting industry representative.