Five Industry Groups Lead Amid Rate Hikes

The 10-year Treasury yield accelerated its uptrend throughout July, August, and September, challenging the expectation of a 'sell the rumor, buy the news' scenario for rate hikes.

Continued weakness in rate-sensitive sectors like small caps indicates that market participants anticipate at least one more rate hike, with the bottom for these areas expected within the next four to six weeks.

Small caps, represented by the IWM, have underperformed the S&P 500 since July, a trend that accelerated in September as the 10-year Treasury yield rose.

Homebuilders, regional banks, and transports also display clear downward relative trends, with their weakness coinciding directly with the increase in Treasury yields.

Following last week's Fed rate hike, the index successfully bounced off the 7500 level, establishing this zone as an important watchpoint for downside movements.

The gambling group, despite significant downward pressure, exhibits a positive divergence on its hourly chart, with lower lows in price corresponding to higher lows in the PO indicator.

This setup could lead to a short-term rebound towards the 423-425 range, although the falling 20-day moving average near 436 presents a near-term resistance point.

Among the strongest groups are Internet, showing secular bull market characteristics after recently testing overhead resistance, and Computer Hardware, which broke out to new highs supported by a strong AD line.

Software is strengthening after recovering from a mid-year slump, reaching a 7-month relative high, while Semiconductors display consistent strength across various timeframes, recently breaking out from a downtrend, and Biotech, the top-performing group, surged significantly from 2,800 to 3,800 in four months.

The Internet sector, identified as the fifth strongest group, recently encountered resistance on Tuesday and subsequently pulled back.

This group exhibits long-term strength with a broken downtrend, and a test of its 20-day moving average could offer a buying opportunity.

Ranked as the fourth strongest industry group, computer hardware's chart reveals a cup-and-handle formation following a July high.

The AD line is currently rising, and relative strength is near a 52-week high, confirming the sector's robust performance.

The software group, ranking as the third strongest, successfully cleared a price high from early June.

Its AD line shows positive momentum, and its relative strength recently achieved a seven-month high.

Semiconductors are identified as the second strongest group, historically demonstrating strength across 1-, 3-, 6-month, 1-year, and 3-year periods.

Recent price action saw the sector break a major downtrend line, with specific stocks like Advanced Micro Devices (AMD) and Micron showing notable strength.

Biotech is ranked as the number one industry group, with its index rising from 2,800 to nearly 3,800 since mid-May.

This rally occurred despite the broader market remaining in a sideways consolidation phase, and the 20-day moving average is identified as a critical support level for the sector.

Abercrombie & Fitch is currently testing gap support near $131, presenting a potential 20% upside towards a double top.

Aramark, a leading stock in the struggling restaurant sector, is holding key support at the $55.50-$55.75 range.

Eton Pharmaceuticals is testing gap support at $55 following a mid-August volume surge, offering another potential entry point.

First Advantage exhibits strong support between $19 and $20, while Intapa, a software stock, is consolidating at support near its 50-day moving average, showing relative strength.

Lifance Health Group (LFST) is a leader, but caution is warranted due to capital rotation away from healthcare providers, and Manpower Group (MAN) has been strong, trading sideways between $55 and $57.50 after hitting $63.

National Energy Services Reunited Corp. (NESR) holds support at $31 to $32 with a target of $37, PBF Energy is testing its 50-day moving average following a bearish gravestone doji signal, The JM Smucker Company (SJM) offers a defensive setup with a tight stop loss near $120, and UroGen Pharma (URGN) presents potential 20% upside from its $40-$42 support level.

Exploration and production receives an honorable mention among top industry groups, but it carries high volatility and is heavily dependent on geopolitical tensions, such as the conflict between the US and Iran.

Tom Bowley notes that historically, the stock market often rises during Fed rate-hiking campaigns, a trend that contradicts common beliefs about market tops, and a webinar on market top identification is scheduled for October 3rd at 10 a.m. Eastern.

Its performance is sensitive to geopolitical tensions, particularly those between the US and Iran, requiring extreme caution for traders considering energy stocks.

The stock recently pulled back to test its 50-day moving average and previous lows, targeting a 10% upside to recent highs with a tight stop loss below $120.

UroGen Pharma (URGN) demonstrates a strong AD line following an early August breakout supported by increasing volume.

Current support levels are identified within the $40 to $42 range, with the stock offering approximately 20% upside potential towards a $50 resistance target.

Registration is open for an October 3rd session at 10 a.m. Eastern, which aims to help members time the market by challenging the common perception that Fed rate hikes immediately trigger a market top.

Historically, the stock market has often risen during Fed rate-hiking campaigns in recent history, and the session aims to equip members with specific signals to better time the market, with registration available via a QR code or video description link.