New Sectors Away From AI/Semis/FAANG Joining In The Rally (Technical Analysis)
Summary
- Equity markets have held up well, with leading sectors such as AI and semiconductors maintaining gains.
- Sectors such as industrials, materials, transports, and cybersecurity are showing signs of joining the rally.
- Improved market breadth could alleviate concerns about the rally's sustainability.
Anastasiia Shavshyna
Equity markets have held up remarkably well in the past few weeks, with stocks from leading sectors such as AI and semiconductors giving back very little of their gains.
The semiconductor ETF (SMH) is trading near its 52-week highs, even after rising close to 50% since the start of the year, for example.
Daily Chart: SMH
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What excites me is that a number of other sectors are awakening from their slumber, and are shaping up to participate in this rally. As the saying goes: "rotation is the lifeblood of a bull market". We could see an improvement in market breadth from here, which would be a healthy development.
For one, the Russell 2000 (IWM), which is a better proxy for the broad market than the S&P 500 (SPY) or Nasdaq 100 (QQQ), is holding up well after breaking out higher from a 3-month base.
Daily Chart: IWM
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The same technical development is observed in microcaps (IWC), which are also holding up well above its key moving averages after breaking out higher from their base.
Daily Chart: IWC
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Away from the leading FAANG stocks, AI, and semiconductor names, uranium is showing a lot of upside momentum. On the weekly chart, the sector ETF (URA) has taken out multi-month resistance.
Weekly Chart: URA
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Within the sector, my focus stock would be Cameco Corp. (CCJ). The stock is trading near its 52-week highs, showing a great deal of relative strength. It is large cap ($14b) and liquid, which would be favourable for institutional investors to accumulate.
Weekly Chart: CCJ
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Industrials (XLI) are on the verge of breaking out from a multi-month base.
Daily Chart: XLI
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Within the industrial sector, Boeing (BA) is on the front foot, having already broken out higher from its multi-month base.
Daily Chart: BA
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Materials (XLB) have broken out above downtrend resistance, and price is holding up above key moving averages.
Daily Chart: XLB
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Transports (IYT) have broken out from their multi-week base.
Daily Chart: IYT
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Cybersecurity (HACK) sector is also showing signs of life, first breaking out from a large multi-month base, and now consolidating well above the neckline.
Daily Chart: HACK
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Many investors have not trusted the rally due to the lack of broad-based participation across stocks. That was initially true, with strength confined to FAANG, semiconductor, and AI stocks. Now, there are signs that market breadth is improving, which should put to bed these concerns.
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