As the S&P 500 hit fresh highs last week, the Consumer Discretionary and Health Care sectors lead the charge. If the market continues to push this higher this week, these sectors will likely be top performers again. The uptrend remain is in tact and strong for the overall market, so buying sectors and stocks showing relative strength remains the key play. Having broken out of a small consolidation toward the end of last week, this is likely to be a positive week for the S&P 500. While less likely, the Consumer Staples Select Sector SPDR (ARCA:XLP) will likely to be a top performer if the S&P 500 slides lower this week.
Consumer Discretionary Select Sector SPDR (ARCA:XLY) closed on November 15 above the rising trend channel its been trading in. That last short-lived pullback found support near $62; a drop below that indicates a move toward the lower channel band at $61. There is also minor support just below $63 which can be used a stop level for long positions. If the upward momentum continues this week, the next target is $66. The target beyond is $68.25, but with a weekly average range of $1.55 it is unlikely the ETF will rise much beyond $66 to $66.50 this week. Similarly, support levels are also unlikely to be touched this week unless aggressive selling develops, which is a low probability.
Within the sector Avis Budget Group (NYSE:CAR) is one to keep an eye on. $34 was a strong resistance level that has now been breached. $37 is the target for the break higher, with minor support at $34 and what should be stronger support at $32 and $30. Based on the structure of the trend the stock likely has another longer-term leg to the upside as well, with targets of $38 and $45. Therefore, longer-term traders can look for pullbacks to any of the support regions with a stop loss below $27, or any swing low for short-term trades. Moving about a $1.25 a week it's likely a few weeks before a pullback to stronger support occurs, although the first $37 target is within range this week or next.
Short-term traders looking for volatility may also want to monitor HomeAway (Nasdaq:AWAY). The stock is up 30% over the last couple weeks and closed up 6.43% on November 15. There is likely to be some follow-through volatility this week, although not necessarily all to the upside.
Health Care Select Sector SPDR (ARCA:XLV) closed on November 15 above the rising wedge its been trading in. Support is at $52.35 with a drop below indicating a move to the bottom of the wedge at $51. There is also minor support just below $52.90 which can be used as a stop level for long positions. If the upward momentum continues this week, the upside target is $54.75. With a weekly average range of $1.21 the next target at $56.30 could take two to three weeks to hit. Similarly, support levels are also unlikely to be touched this week unless aggressive selling develops, which is a low probability.
Biotechnology was the top industry last week in the Health Care sector and Incyte (Nasdaq:INCY) is one of the reasons why; up 26.49% on the week, and 192% on the year. On November 13 the stock broke above a consolidation pattern signaling another wave higher. Having moved significantly higher already, the first target at $48 is very close to the November 15 close. The next target is just above $55, but a pullback is likely to occur before then providing a better buying opportunity. Support--and potential buying opportunities--are at $42 to $41 and $38 to $37.50. Major support is at $33, which acts as a final stop level, although the other support regions can be used as stops as well if the price tests them and then moves higher again.
Short-term traders looking for volatility may wish to monitor Organovo Holdings (NYSE:ONVO). The stock is up 30% over the last couple weeks and closed up 6.43% on November 15. There is likely to be some follow-through volatility this week, although not necessarily all the upside.
The Bottom Line
The stock market continues to look strong, and trading with the trend in strong stocks and sectors is usually the most high probability strategy. This is likely to be a bullish week for stocks following the breakout of a small consolidation last week in the S&P 500. It's arguable though the market is overextended and due for a correction, therefore risk should always be managed.