The financial and industrial sectors led the S&P 500 to a new high last week, as the uptrend continues. These sectors are led by stocks performing very strongly, having seen aggressive runs higher. While it's tempting to jump in and avoid missing more of the move, taking a step back, analyzing the situation and waiting for solid entry points is always the more prudent play over the long run.
Financial Select Sector SPDR (ARCA:XLF) was up 3.09% last week, by far the strongest performer. The price just reached a former target of $22.50, which means there may be some short-term resistance near the March 7 close. A further upside target is at $23.15, although a pullback may occur before this is reached. $22 to $21.75 should now act as support on pullbacks, providing a buying area with stop losses below $21.25.
Berkshire Hathaway class B shares (NYSE:BRK-B) broke aggressively above the $119 resistance level which had quashed multiple rallies over the last 10 months. In early February, the price broke below strong support at $111, but the breakout quickly failed. That failure to go lower was an early indication the price was likely to re-test $119. The next upside Fibonacci target is $123.85 followed by $126. Those looking for a better entry point can wait for a re-test of $120 to $119, which should now act as support.
Industrials Select Sector SPDR (ARCA:XLI) had stalled at $52.35 resistance, but blew through it this week, putting in a 1.81% gain. $52.35 to $52 is now likely to act on short-term support. A pullback between $51 and $50 also presents a buying opportunity, but the trade becomes less compelling the closer it gets to $50, since that would mean some decent selling strength has developed. Therefore, a stop can be placed below $50 for trades lasting multiple weeks, while short-term traders will likely prefer using the $51 region. The next targets are $53.90 followed by $55.90.
Airlines was the leading Industrial industry last week, with Delta Airlines (NYSE:DAL) one of the top performers, moving up 6.47%. Fibonacci targets are at $35.71 (already touched) and $37.00, indicating the price is entering a potential short-term topping area. If a pullback occurs, $33 to $32 is a support region which aligns with a short-term trendline and provides a good entry location. A stop can be placed just below $30 with a target--based on a continued uptrend--between $38.75 and $39.75 (or at both levels) .
Hawaiian Airlines (Nasdaq:HA), a much smaller company, has also seen a very strong rally, up 17.94% last week.
The Bottom Line
The overall stock uptrend continues, as indicated by new weekly highs in the S&P 500. Strong surges in many stocks tends to build emotional pressure to "Purchase now!" before it goes up further. Pullbacks always occur though, so analyzing the situation and waiting for an entry that makes sense and provides a good risk to reward ratio is a better long-term trading plan. The downside of this is that it may occasionally mean missing out on a trade, but trading with a clear objective far outweighs emotional impulse trades.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.