Weekly Market Overview – $PINS to Pop – July 26, 2021

Bullish – PINS – $76.91

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Market Outlook:

Equities ended the week on a positive note after a strong rebound after Monday’s pullback. The pullback provided a good risk/reward long entry in the major indices as SPY and QQQ both rallied to all time highs. We notice better sector rotation in recent days when compared to previous weeks where there was narrow leadership in Technology and Discretionary. However, the rebound in Industrials, Financials and Materials is showing signs of losing steam. The RSP equal weighted index is still yet to break above the $152 resistance level which is concerning as SPY continues to rally to all time highs. Investors should be aware of jobs data this week that will likely add some volatility for equities in addition to further earnings announcements.

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PINS Bullish Trade Idea:
Our bullish trade is Pinterest Inc (PINS). PINS is in the early stages of revenue growth and monetization indicating further long-term upside. PINS rallied on Friday after SNAP’s earnings announcement but options remain expensive which is a plus for the credit spread trade strategy for this trade. Both 1M and 6M trends have turned bullish indicating now is a good time to gain long exposure in PINS after a 5-month consolidation phase. 

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Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that the extended leadership in Discretionary, Health Care and Technology was fading but looks to be picking up after a strong performance on Friday. These sectors have remained in the weakening category for a limited time and unless they move below the 100 RS-Ratio, leadership in these sectors may continue. A number of sectors are in the improving category including the defensive Utility and Staples sectors and have been gaining momentum but are yet to cross the 100 RS-Ratio level to be considered a leading sector. 

Leading (positive relative trend and positive relative momentum): Only Real Estate is in the leading category after gaining momentum earlier last week. We have previously highlighted XLRE’s bullish trend in recent weeks as price continues to make higher highs.

Weakening (positive relative strength and negative relative momentum): Technology, Discretionary and Healthcare have experienced a decline in relative momentum this week moving below the 100 level for RS-Momentum. Healthcare has started to pick up relative momentum and looks likely to move to the leading category once again. 

Lagging (negative relative trend and negative relative momentum): Communications and Energy are showing signs of improving relative momentum with a significant momentum improvement in Energy and minor improvement in Communications. If this continues, expect Communications to reach the improving or leading categories this week.

Improving (negative relative trend and positive relative momentum): 5 sectors are currently in the improving category with a momentum gain in the last 5 days. The defensive Utility and Staples sectors are showing signs of lower momentum in recent days but look likely to move into the leading category.

XLV 

Last week’s strong bullish candle and break above the $129 support level indicate further upside for XLV. Look for a pullback to retest the previous $129 support as additional confirmation and better risk/reward long entry.

XLC

XLC has been grinding higher and broke above the $82 resistance level with strong momentum on Friday indicating further upside. A retest of the $82 level and rejection would provide further evidence of a rally. 

Market Observations

  • FB – Break above $356 resistance indicates further rally. Price pulling back to this level would provide a better risk/reward long entry. Investors should be aware of earnings announced this week.
  • IBB – The Biotechnology ETF bounced higher with strong momentum on Friday after pulling back from all-time highs since February. Next resistance is at the $172 all-time highs.
  • NIO – If NIO can hold the $42.77 support level, price will likely form an inverted head and shoulders pattern on the daily timeframe with a $47 neckline. A break and retest of the neckline provides a good long entry
Tony Zhang