David Keller on the Biggest Questions in the Market Right Now

Mon, May 11, 2020 - 3:49pm

David Keller of Stockcharts.com recently talked to Jim Puplava on the Financial Sense Newshour. David shared what sectors he sees leading the market and discussed some of the biggest questions in the market right now. See below for excerpts from his interview on the Financial Sense Newshour.

For audio, see Will the US Bounce Back from a Mini Depression?

Let’s talk about the S&P, the Dow and the Nasdaq. If you compare them, the Nasdaq has just been soaring like a NASA space launch.

That's such a great visual for how the chart looks; that's a fair comparison. I think there's no doubt the speed of the of the recovery has been impressive out of the March lows. You know, in technology, the sector has been leading not just out of the lows, but it's been an outperformer pretty consistently.

So, if you're looking at the Nasdaq compared to the S&P, you certainly see that strength from technology. And I've argued, from a technical perspective, it lines up to be a core position. It's something that continues to outperform in down cycles and up cycles. As a result, when people are optimistic and they feel like things are going to recover, they're going to the part of technology like semiconductors and other things that should help us if we are in a recovery phase. But when things get difficult, they go to big defensive parts of tech like Apple and Microsoft and names like that. As a result, it ends up being a pretty consistent performer.

Yeah, the only other sector I see that even looks close like this on the charts is the healthcare sector.

That's exactly right. I think biotech is probably the best example of the leadership in healthcare. After the initial move, on a relative basis, tech sort of tapered off for a little bit while healthcare really emerged and continued outperform and it was really driven by biotech. It’s names like Regeneron, which are just incredible charts sort of up into the right long and strong, consistent performers, making new highs or testing new highs consistently. So it's a really good place.

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Then you started to see other parts of healthcare, like medical supplies, like Big Pharma actually performing pretty well. That’s started to unwind a little bit and I think that's one of the things that a lot of strategists, myself included, have been looking at. Sort of that next level down and finding out what rotations we're seeing between sectors and also between groups within those sectors.

Is there anything showing you we might be consolidating, or anything that’s diverging?

It's a great question. What's interesting about this environment is that I think the market has found a way to validate everyone's outlook. So, if you're really bullish and you're optimistic about the economy reopening and states starting to loosen the restrictions and companies recovering and you think the market can go higher; you're getting plenty of evidence with the with the S&P in the short term making higher highs, higher lows continuing this uptrend.

If you're more bearish, more constructive long term in the market, what's happened it's not necessarily divergences, but you're finding that the S&P retraced about 61.8% of that February to March sell off. If you take the high from February and the low from March and you and connect those two—61.8%, which is one of those Fibonacci levels that a lot of a lot of traders and investors follow—that’s right on 2935 on the S&P. We went just above 2950 and then pulled back.

If you were to draw a standard bear market rally, that would be about what we’ve seen here. So, if you're long-term bearish, we have the quick rally that happened in the late 1920s, early 1930s, you have that with any major bear market phase. You have one of these violent, quick bear market rallies that suck so many people in before the next leg down. I think the challenge right now is that everyone feels a little bit validated. I would say most people expect at least some pullback here and I think that's totally justifiable.

In terms of divergences, what concerns me are any stocks that are not holding up well. So for me, financials and the underperformance of financials is probably one of the biggest question marks and things you have to be worried about. If the if the world's getting better, if things are recovering, if the economy is working well, you would expect big financial institutions to be in a position to benefit from that. But that's not what we're seeing.

The things that are doing well are healthcare stocks, those are going to get us out of this from a medical perspective. Technology stocks that are going to allow us to do calls like this from our homes. And networking and consumer names like Amazon that allow us to shop.

But it's not the big banks or the old economy that would do well if things are really getting better. So, until you see financials sort of participate, I think you have to be skeptical about a lot of further upside. If you look at a chart of like JP Morgan, it's starting to break down a little bit along with a lot of the other banks as well.

What are your thoughts going forward?

If you look back at market history, and again, I don't think we're in a great depression sort of period. So, don't make draw that conclusion by what I'm about to say. But one of the biggest, most impressive short term, bull market runs we've seen was right after the first leg down in sort of the late 1920s into the early 1930s. That first leg back up after the initial sell off is very similar to this, we retraced about 50% of the previous sell off a little bit more than that and things felt great.

But if you zoom out, it feels like just this initial move among many other ones. So, this is classic for that first initial period of what can often become a much longer, much more painful bear markets. For me, I think it's all about watching the trends, watching the charts and paying attention to where the prices are actually headed. I think if you do that, you're going to be on the right side of things.

To hear David's thoughts on interest rates, gold and oil click here or for an archive of past shows, visit our Financial Sense Newshour page.

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