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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, July 01, 2020

1. New quarter sees stocks drifting higher

2. Big moves ahead in Healthcare sector?

3. High performing ETFs so far in 2020

Market Moves

The first day of the third quarter brought mixed results from the benchmark indexes. The S&P 500 (SPX) closed higher, as did the Nasdaq 100 (NDX), but the Dow Jones Industrial Average (DJI) and the Russell 2000 (RUT) closed lower. The lack of conviction these results show is also reflected in the overall trend in large cap stocks.

The chart below demonstrates how the month of June left large company stock indexes in range-bound territory for the most part, despite many individual stocks breaking out to new highs. Looking at State Street's S&P 500 index fund (SPY) compared with its historic volatility ranges shows a clear support and resistance level and how stocks have drifted within this range over the past month. It will likely take strong moves to get the index past these points, and such moves are not likely to come before earnings season gets started in two weeks.

Big Moves Ahead in Healthcare Sector?
Under current circumstances, headline-making events tend to drive stocks in the healthcare sector perhaps more forcibly than in previous times. The chart below compares State Street's Healthcare sector index fund (XLV) with three influential stocks in that sector: Amgen (AMGN), Pfizer (PFE) and Bristol-Meyers Squibb (BMY). Each of these stocks had news items that were of minor to medium significance today. Even so, the resulting price action was quite different among the three.

This points out that over the upcoming earnings season, stocks in this sector are prone to bigger moves than expected--for better or worse. Investors have a lot of expectations about such companies that may, or may not, be realized. Chart watchers should factor this dynamic into their analysis for the next quarter.

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High Performing ETFs so far in 2020

Even though many indexes are showing a mix of cross-currents within them, and tending to average into a range-bound performance, that is not the way it is for all index-based funds. The chart below takes a look at four unique indexes based on ideas that resonate with traders and investors alike: O'Shares' Global Internet Giants ETF (OGIG), ARK Invest's ARK Innovation ETF (ARKK), VanEck Vectors' Video Gaming and eSports ETF (ESPO), and iShares' Global Clean Energy ETF (ICLN).

This chart shows that some index ETFs have done quite well this year so far and even broke out to new highs today. If any assets were likely to do well in the months ahead, the stocks that drive these ETFs are a good bet to be among them.

The Bottom Line

Stocks moved mildly higher for the first day of the new quarter, with some surging higher while others fell. On average, the benchmark indexes drifted higher. This suggests that price action may stay within a range until earnings season gets underway.