The SPDR S&P 500 (NYSE:SPY) continued to consolidate last week, holding above a support in the $167 area. The uptrend remains in place, and at current levels buying opportunities are still present. Here are two sectors to watch this week, along with stocks in each that are performing well.
Last week the strongest sector was Health Care, with the Health Care Select Sector SPDR (ARCA:XLV) up 1.03%. The October 4 close at $51.22 was just below the high price of the consolidation at $51.26. Given the close proximity to a short term trendline and a Fibonacci support level, if the price rallies above the consolidation high it is highly likely the uptrend will be back underway. Upside targets are $52.45 followed by $53, assuming the recent low at $50.27 isn't pierced before the targets are reached. The average weekly range for the ETF is a $1.10, so the targets won't likely be hit this week.
Within the Health Care sector, Tenet Healthcare (NYSE:THC) broke out of a large wedge formation on strong volume last week. Two targets to look for are $49.25, and a longer-term target of $54. At this point, waiting for a pullback below below $43 creates a better risk-reward ratio, since the nearest place for a stop-loss is just below $39.39.
Another stock to keep an eye on in this sector is HCA Holdings (NYSE:HCA). The stock was up 9.58% last week, so short-term traders may find trades in both directions this week based on volatility, while longer-term traders can wait for a pullback to pick up the stock between $44 and $43.
The Materials Select Sector SPDR (ARCA:XLB) was the second best performing sector last week, up 0.93%. It closed on October 4 at the high for the week, breaking the consolidation pattern it had been in for the past several days--a bullish signal. Fibonacci and trendline support are both near $41.50, which the ETF looks to have respected, indicating likely further upside. The first target is $43.80, just slightly beyond the former high, followed by $44.45 if the price continues to rally. Average weekly range is $1.08, so even the first target will likely take more than a week to hit.
Within the Materials sector Huntsman Group (NYSE:HUN) was a top performer, up 6.67% last week. The strong run-up follows a triangle pattern breakout which occurred in early September. The $21.99 closing price is close to the target of $22.60 for that triangle breakout. Therefore, the volatility may be of interest to short-term traders in both direction if a pullback occurs off potential resistance. Swing traders are likely to get interested in the long between $21 and $20.75, anticipating another run-up, with stops near the $20 mark.
The Bottom Line
The overall market, as represented by an ETF such as the SPDR S&P 500, still remains in a uptrend despite the recent pullback. Healthcare and Materials sectors look strong heading into the week, and there are still lots of opportunities in strong stocks. Despite appearing to have respected support and likely heading higher, the correction could continue for equities. Stops are used to control risk, and trades only taken if the potential reward is likely to outweigh the risk.