Out-of-Favor Stocks Poised for Reversal

Oil prices fluctuated throughout the week but generally trended lower, providing some stability to the markets.

Comments from Fed governors regarding interest rate outlooks, including Fed Chair Jerome Powell's indication of at least one more rate hike before year-end, influenced market movements.

Investors are closely watching upcoming key indicators such as PCE inflation data, ADP private employment, and non-farm payrolls for further economic direction, while Micron's earnings report is anticipated as a key AI-related stock event.

News of a potential US-China tariff truce also helped calm market anxieties, contributing to a more stable environment.

The S&P 500 gained approximately 1% last week, closing above key moving averages with a positive Relative Strength Index (RSI).

A bullish MACD crossover, where the black line moved above the red line, signals potential for further upside, though market momentum is less dynamic compared to early July periods.

The index now sits below key support at 8659, with technical indicators showing a negative RSI and a bearish MACD crossover, where the 21-day moving average crossed below the 50-day.

This divergence suggests that the broader market's strength is currently supported by a very select few sectors and stocks, rather than widespread participation.

52% of stocks in the S&P 500 have now closed back above their 20-day moving average, a sign of improving market breadth.

The NASDAQ Composite showed stronger momentum than the S&P 500, rising over 2%, with Technology emerging as the top-performing sector, up 3.5%.

Healthcare is also demonstrating strength, advancing above its 21-day simple moving average, suggesting a potential for continued gains.

A positive RSI and a pending MACD crossover are highlighted as key signals often preceding a new uptrend.

The XLC sector gained 2%, largely driven by a significant 13% surge in Meta Platforms, despite Google's flat performance within the same sector.

Conversely, the Energy sector (XLE) is currently the weakest, down 3.5% with a negative RSI, and nearing a critical break of its 50-day moving average, indicating potential further downside.

Utilities (XLU) are in an oversold position with an RSI of 25, suggesting a potential for a short-term bounce despite current weakness.

REITs and other high-yield sectors are struggling due to rising interest rates, which increase borrowing costs necessary for expansion and make these sectors less attractive.

The REIT sector, in particular, remains in a downtrend, trading well below its 200-day moving average, indicating persistent challenges.

Despite these elevated rates, the market has sustained strength near new highs, a deviation from historical patterns where such rates often triggered pullbacks.

Brent crude prices pulled back from $110 to $104, providing some stability for rate-sensitive sectors.

Semiconductors (SOXX) emerged as a top technology performer, rising 7.5%, showcasing sector-specific resilience amidst broader economic pressures.

Biotech (IBB) saw a 2.6% gain, partly fueled by advancements from companies like Moderna, indicating some pockets of strength.

Small caps, represented by the Russell 2000, remain in a downtrend due to their heavy reliance on borrowed capital, which becomes more expensive in a rising interest rate environment.

The retail sector (XRT) also faces downward pressure, as rising interest rates and potential inflation threaten consumer spending and overall economic activity.

A screening methodology targets 'secondary leaders,' which are stocks that were previously favored but recently fell out of favor.

The primary screening criterion involves identifying stocks that are reclaiming their 50-day simple moving average.

Additional technical confirmation is sought through a positive RSI and a positive MACD crossover, enabling investors to uncover opportunities beyond the obvious daily market movers.

MCHP, a former leadership name in the semiconductor space, is actively involved in power management for data centers and is now exiting a prolonged downtrend.

TXN has moved above its 50-day moving average, supported by a positive RSI and MACD, signaling a potential upward trajectory.

O is exhibiting bullish recovery characteristics with a positive MACD crossover, while Credo Technology (CDO) has returned above its 50-day SMA despite an initial post-earnings drop.

ALAB and Veeco Instruments (VECO) both display bullish charts, marked by positive RSI and MACD trends, indicating robust recovery potential in the semiconductor sector.

OUST, a smaller-cap stock, is showing a bullish uptrend by moving above its 50-day moving average.

Tower Semiconductor (TSEM), involved in optical silicone products crucial for AI, has experienced multiple failed downtrend reversals, making its upcoming November earnings report a key catalyst.

Investors need to identify specific drivers for stocks that exhibit erratic technical behavior, differentiating between genuine reversals and temporary fluctuations.

The segment of semiconductors focused on optical-related silicon products is particularly critical in the context of artificial intelligence advancements.

With Consumer Discretionary (XLY) historically struggling during rate hikes, analysts are monitoring restaurant stocks and Crocs (CROX) for potential signs of resilience.

Crocs (CROX) is flagged as a potential reversal candidate, despite facing previous interest rate headwinds, showing signs of emerging strength.

Restaurant stocks with strong same-store sales metrics are being monitored for trend changes, as they could emerge as leaders once the broader sector turns positive.

SKY (M.D.C. Holdings), a smaller housing-related company with a $4.5 billion market cap, is showing volatility while reclaiming its 50-day simple moving average.

The S&P Homebuilders ETF (XHB) indicates that the broader housing group is not yet ready for a sustained rally, despite some individual stock movements.

News of Buffett's firm acquiring a 10% stake in Lennar (LEN) provided a temporary boost to the group, alongside new housing data from the previous week suggesting potential activity in the sector.

Despite this positive price action, the analyst warns of potential 'speed bumps' ahead, urging caution for investors.

The Healthcare sector (XLV) has regained its uptrend, moving above the 50-day moving average.

Amgen saw a price target upgrade following successful phase three trials for an autoimmune product, boosting sentiment in the sector.

ARQT (Arcutis Biotherapeutics), a smaller $3 billion biotech company, is identified as showing significant strength.

Pfizer is noted for moving above short-term averages, with a potential bullish MACD crossover further suggesting a positive trajectory.

Delta Airlines is moving above its 50-day moving average ahead of its upcoming earnings report, while the Airline ETF (JETS) appears to be firming up.

GFF (Griffon) and AAN (Aarons) are showing reversals in their downtrends, indicating renewed interest in specific industrial names.

Industrial sector interest is notably linked to data center cooling systems, maintaining a thematic connection to the broader AI investment trend.