A strong week for equities saw the S&P 500 SPDR (ARCA:SPY) to a new high, with the Industrial and Cyclical sectors leading the market. With the overall uptrend in equities still in full swing, these sectors, and associated stocks, are likely to continue to perform well this week. On the other hand, if the market consolidates or heads lower early in the week, look for Utilities and Consumer Staples--more conservative sectors--to perform well relative to other sectors.
Industrials Select Sector SPDR (ARCA:XLI) climbed 2.24% over the last week, and is near the top of an upward sloping trend channel. Minor support is $47.50, and can be used a stop level for newly established longs. If the price continues higher from the October 25 close at $48.76 it will over-throw the top of the trend channel, showing strong buying activity. Throw-overs are typically short-lived, but can be profitable due to the quick price movement. Strong trend support is between $46.50 and $45.50. If a pullback occurs, look to buy in this region with a target of $50. If the price falls much below $45.50 it indicates the uptrend is weakening.
Fortune Brands (NYSE:FBHS) jumped 11.22% last week and is one of the stronger stocks in the industrial sector. This stock isn't in an uptrend, but the price is in close proximity to the top of its price range. The $44 region has been an obstacle since May, and a break higher is likely to propel the stock higher over the coming weeks. If a breakout occurs, the target is $51 to $52. On the other hand, if the price can't break through resistance, the range will continue and the price is likely to fall back toward the $38 to $36 region.
Cyclicals Select Sector SPDR (ARCA:XLY) climbed 2.05% over the last week, and is near the top of an upward sloping trend channel. Minor support is $62, and can be used a stop level for new long positions. If the price continues higher from the October 25 close at $63.31 it will over-throw the top of the trend channel, showing strong short-term buying activity. This can be taken advantage of by short-term traders, or those already in long positions, but for longer-term traders establishing a position near the top of a trend channel isn't advised. Strong trend support is between $60 and $59. If a pullback occurs, look to buy in this region with a target of $65. If the price falls much below $58.50 it indicates the uptrend is weakening.
PulteGroup (NYSE:PHM) jumped 8.81% last week, and while the stock hasn't been in an overall uptrend like the major indexes and sectors, the stock is showing bullish characteristics as of late. Since August PulteGroup has been making higher price highs and higher price lows. $16 should now act as major support on pullbacks, providing a buying opportunity with a stop loss below $15.50. The target for the next swing higher is $19.25 to $19.50; this could occur shortly with a rally above $18.50 or may require the pullback first in order for the stock to gather more steam.
The Bottom Line
The market continues to perform well and the uptrend remains in tact. The industrial and cyclical sector ETFs have both reached the upper bands of their trend channels, so a short-term pullback is quite possible in the short-term. Look to buy pullbacks near primary trend support regions to capitalize on the next wave of the uptrend. Short-term traders can also look to capitalize on the potential brisk move higher often associated with a throw-over of the upper trend channel band. It is advised all traders use stop loss orders to control risk.