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Argus Daily Technical Analysis: Sentiment Improves with Recent Breakout

Joanna Kong
Yahoo Finance Premium

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Last week, Argus changed its intermediate-term assessment to Bullish after several major indices broke above the top bands of their recent trading ranges. Breadth also has been positive, with the advance-decline line near an all-time high and up-down volume similarly skewing "up."

Sector participation has been broad in the breakout. Risk-on groups (Technology, Industrial) reasserted leadership while being joined by income-oriented sectors (Utilities, REITs), given a fixed-income environment that is leaving investors starved for income.

The sentiment setup before our upgrade was also highly favorable. Often at market bottoms and just before the turn-up, retail investors bail on the market. Seeing that signal, institutional investors then step in with heavy volume, sending stocks upward. According to the American Association of Individual Investors, bullish sentiment as of 9/5/19 was 28.6%, while bearish sentiment was elevated at 39.5%. For the four preceding weeks, AAII bullish sentiment averaged an anemic 24.4%.

The 14-day relative strength index (RSI) on the S&P 500 also has been sending a favorable message. The RSI hit a multi-month low of 28 early in August, when investors were digesting the possibility (now reality) of new tariffs on 9/1/19. The RSI crept higher through the eighth month, yet as recently as 8/28/19 was still below 50. The RSI as of 9/6/19 was 58, or below the 60-70s level prevailing for most of 2019. We see the rising trend in RSI as favorable, while also viewing the sub-60 reading as indicative of further runway in this leg of the rally.

Western Digital (WDC)

Western Digital, the old HDD leader, revolutionized itself with the SanDisk purchase in 2016. That deal positioned WDC for the transition from HDDs to SSDs. But memory pricing slumped in 2018, sending the WDC shares lower. Industry recovery appears to be underway, although the trade war is a wild card.

From the $80s in January '18, WDC spiked to $106 in March -- and it was all downhill from there. The stock reached $38 in December '18, recovered to the mid-$50s by April '19, but was back in the high $30s in June. Since stabilizing in the $50s in July and August, WDC has pushed to the $60s for the first time since September '18.

We would put a stop-loss at the 20-day at $56, with a final stop at the 50-day at $54. Resistance lurks in the mid- to high-$60s area and we would take profits around there.

Oneok Inc. (OKE)

The Energy sector has been toxic in recent years, but particularly in 2019. As of the end of August, Energy constituted just 4.4% of S&P 500 market capitalization (and, of note, the five-year sector band for Energy had been 5%-13%). The incredible shrinking sector has not been helped by the historical shale boom in the U.S. Without the shale boom, Energy might be 4% or even 3% of S&P 500 weight. One area that has relatively outperforming has been natural gas, but only for companies like OKE that combine transmission with distribution.

From the mid-$60s a year ago, OKE slid to the high $50s in late fall 2018 before bottoming at $50 on Christmas Eve. The stock regained the upper $60s by March '19 and steadied there. Since tap-dancing on the 200-day in the low $60s in July, OKE has been achieving higher lows and rising highs and is now in the low $70s for the first time in over a year.

We would put a stop-loss at the 20-day at $68, with a final stop at the 50-day at $65. OKE is closing in on its intraday high near $72 from July 2018; we would take profits in the mid- to upper $70s if the $72 barrier is conquered.

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