Upcoming Webinar: Join us on Wednesday, August 18th at 1 pm ET for a webinar in partnership with KraneShares on Volatility and Relative Strength in China. In this webinar, we will have the Chinese investment experts at KraneShares review the recent developments in China, and provide perspective on what we can look toward in Chinese equity markets. We will also review the KraneShares Dynamic China Rotation Model available on the NDW research platform, and offer potential implementation ideas for those looking to maintain exposure toward emerging markets while mitigating risk in Chinese equities.

Speakers include:

• Brendan Ahern, Chief Investment Officer, KraneShares
• Ian Saunders, Senior Analyst, Nasdaq Dorsey Wright

This webinar is pending 1 hour of CE credit for CFP and CIMA certifications

Click here to register!

The S&P 500 Index (SPX) advanced Thursday to mark a new all-time closing high at $4429.10 before continuing higher intraday Friday to break a quadruple top on its default chart and print a new all-time chart high at $4440. Trading on Thursday also led the CBOE SPX Volatility Index VIX to break a double bottom at 17.50, which moved the Index back into an overall negative trend prior to its continued decline Friday to 17. This decline in volatility paired with high levels for the core equity benchmark is consistent with historical averages as the VIX has an average level of about 18 when SPX reaches a new all-time high so far in 2021. If we look at averages from 1950 through trading Thursday, the VIX has an average level of roughly 15 when the SPX hits a new all-time high, so we might expect even more of a decline in volatility if SPX continues to push higher.

This year has seen a total of 43 new all-time closing highs for the S&P 500, which is the tenth highest number of all-time closing highs seen in any year since 1950. This equates to about 27.7% of the trading days so far this year, which is the third-highest percentage of all-time closing high trading days over the same timeframe. Interestingly enough, we have seen this year’s all-time highs come with an average SPX OBOS reading of just 61%. This is below the average OBOS reading at all-time highs since 1950 at 85%, indicating 2021 has seen a much steadier ascent for the core market benchmark as it navigates uncharted waters.

Annual returns for SPX in other years with a significant amount of new all-time highs are generally very positive. If we examine only the years that have seen at least 10% of the trading days hit fresh closing highs, we are left with 25 years since 1950. The average return for SPX in those 25 years sits at over 19%, which is slightly higher than the year-to-date return for the Index in 2021 at 17.92% (through 8/5). This steady improvement for the index has come with positive recent participation readings, as the Bullish Percent for SPX ^BPSPX reversed back up into a column of X's last week, and the Positive Trend for SPX ^PTSPX sits in a high field position at a chart level of 82%. While these intermediate and long-term indicators each demonstrate strength, the more near-term focused Ten Week for SPX ^TWSPX sits at a reading of just 56% through trading Thursday. While this does show that over half of the stocks in the S&P 500 are trading above their ten-week moving average, it also means that 44% of the stocks are still trading below that average, we have seen this indicator sit at much higher levels earlier this year with readings as high as 92% in April. This points toward the potential for further near-term improvement, making the TWSPX indicator an important indicator to monitor for continued advances as we head toward the end of the year.

After failing to reach an agreement on Thursday, the U.S. Senate is scheduled to vote once again on Saturday to finalize and move towards the passage of the Infrastructure Investment and Jobs Act, a bipartisan bill that includes $550 billion in new federal investment in America’s infrastructure (Source: Reuters) While the 2,702-page, $1 trillion proposed bipartisan bill makes mention of investments into the traditional infrastructure realm such as repair of roads and bridges, public transit upgrades, and the replacement of lead water pipes, it also unveils plans to update and improve other vital areas of modern-day society such as providing reliable high-speed internet and broadband access for all Americans and electrifying schools and buses across the country with a focus on clean energy transmission. The legislation includes a comprehensive Buy America provision to ensure that all taxpayer-funded infrastructure and public works projects are built with American iron, steel, manufactured products, and construction materials in an effort to create manufacturing jobs in the USA. (Source: The White House) Click here to read the proposed bill in its entirety.

In Wednesday’s DALI & US Equity Overview feature, we discussed some of the sub-sectors that could be affected the most by the passing of the Infrastructure Investment and Jobs Act, such as heavy construction, transportation services, communication technology, and pollution, and reviewed each area’s relative strength when compared to one another using DWA sub-sector indexes. Today, we will take our analysis one step further and drill down into technically sound individual stock ideas that may benefit from the passing of the Infrastructure and Jobs Act, as well as a few ETF ideas to consider if looking for a way to "play" the proposed legislation. Bear in mind that the infrastructure bill has not been passed and that the potential list of related stocks and sub-sector themes that may be impacted is very broad. The stocks and sector themes discussed today are by no means the final list as by the time the bill is passed, the list could either be more or less than those shown. The degree to what stocks and related sub-sectors may be impacted most also has the potential to change. 

Access to Reliable Broadband for All Americans

• Charter Communications, Inc. CHTR – CHTR is a technically sound 4 for 5’er that ranks within the top third of the media sector stock matrix. CHTR, a fiber and cable provider, has been trading in a positive trend since January 2019 and has maintained superior strength versus the broader market since moving to an RS buy signal in April 2011. With yesterday’s session, CHTR printed a new all-time high at $776 where it currently trades on two consecutive buy signals, confirming that demand is in control. Furthermore, monthly momentum has been positive for three months, adding to the positive technical picture. Although the weight of the evidence for CHTR is overwhelmingly positive, we do note that the stock is trading in heavily overbought territory with an OBOS% reading of 93% so those looking to initiate new long exposure may want to scale in here or buy on a pullback/normalization of the trading band. Initial support sits at $704, with additional support available at $672. Although CHTR trails the S&P 500 Index by 154 bps on a year-to-date basis, it is up an impressive 12.78% over the last 60 days, outperforming the SPX by over 8% during that period.

• Liberty Broadband Corp LBRDA – Liberty Broadband Corp, a holdings company that engages in the cable, broadband, and mobile location technology businesses, is a 3 for 5’er within the media sector that is trading well above its bullish support line that dates to April 14, 2020. LBRDA is showing long-term strength versus the broader market, evidenced by a market RS buy signal, and has given four consecutive Point & Figure buy signals on its default trend chart over the last four months. With yesterday’s action, LBRDA printed a new all-time high at $178, which pushed the stock into slightly overbought territory with an OBOS% reading of 77%. Like CHTR, those wanting new long exposure may wish to scale in here. Furthermore, LBRDA trails the S&P 500 by 5.52% on a year-to-date basis however we have seen the stock outperform the broader market by over 7% over the last three months and is one to add to your list if looking to play the broadband piece of the proposed Infrastructure Investment and Jobs Act. 

Other Stock Ideas:

• Comcast Corporation - CMCSA - 3 for 5'er

• Dish Network Corporation - DISH - 3 for 5'er

• AT&T Inc. - T - 1 for 5'er

Road and Bridge Repair, Traditional Infrastructure

• Nucor Corporation NUE - NUE, the largest domestic steelmaker, is a high attribute name that ranks #1 in the steel/iron sector stock matrix. NUE continues to trade well above its bullish support line that dates to August 2020 and is showing near-term strength versus the broader market. In June, shares of NUE reached their all-time high at $110 twice, which formed a double top on the chart, before experiencing some weakness throughout most of July. On July 27, however, NUE returned to a Point & Figure buy signal at $99 before moving higher to $106 where the stock sits today. From here, a move to $112 would mark a new all-time high on the chart. NUE also just experienced a flip to positive weekly momentum after having spent the previous eight weeks on the negative side, suggesting the potential for higher prices. With an OBOS% reading of just 11%, new positions are welcome here. NUE has support available at $88. Note NUE offers a yield of 1.52% and is up over 90% on the year. 

• Martin Marietta Materials Inc MLM – MLM, an American-based company and a leading supplier of building materials, is a 2 for 5’er within the building sector that recently moved back into a positive trend when it broke a double top at $364 on July 28. In May, we saw MLM form a double top at $380 before experiencing some near-term price weakness throughout June and July. Since being promoted to a 2 for 5’er, shares of MLM rallied higher to $376 before pulling back to support at $360 where the stock trades today. Furthermore, weekly momentum has been positive for three weeks, suggesting the potential for further upside. Although MLM is a lower attribute name, this is an improving stock to monitor to play the proposed infrastructure bill as MLM is a supplier of crushed sand, gravel, ready-mix concrete, and paving products and services. 

Other Stock Ideas:

• Caterpillar, Inc. - CAT - 2 for 5'er

• Deere & Company - DE - 4 for 5'er

• United Rentals, Inc. - URI - 5 for 5'er 

Clean Energy Transmission, Electric Vehicles (EVs), & Energy Infrastructure

• Eaton Corporation ETN – Eaton is a diversified machinery and tools company that has segments of its business within clean energy and utilities, along with the production of electric car components. ETN is a 4 for 5’er that ranks in the top third of the Machinery and Tools sector matrix. The stock has maintained a positive trend since May of 2020 in addition to long-term and near-term positive RS versus the market as defined by the S&P 500 Equal Weight Index and near-term positive RS versus its peer group. On the chart, ETN completed a shakeout pattern when it broke a triple top at $150 in July before rallying to break a double top at $156, completing a bullish catapult, and reach a new all-time high at $164. Okay to consider the stock in the mid-$150s to low-$160s. Initial support lies at $148, while additional support lies at $140.

• OSHKOSH Corporation OSK – OSHKOSH provides technology and equipment to the auto industry and has recently made bounds in the electric vehicle market. Not too long ago the company, which owns Pierce Fire Trucks, launched its first zero-emissions hybrid fire truck with OSHKOSH EV battery and hybrid technologies. From a technical perspective, OSK is a 5 for 5’er that ranks in the top half of the Autos and Parts sector matrix that’s accompanied by a yield north of 1%. On the chart, OSK has shown some near-term weakness with two consecutive sell signals since June and the chart has fallen to form a double bottom at $114 with recent action. Ideally, we would look for the chart to move back into X’s and rally to return to a buy signal, which would currently be a potential double top at $124, before considering exposure. Note resistance lies at the stocks May rally high at $136, while support lies at $112 and at the bullish support line at $106.

Other Stock Ideas: 

• Brookfield Infrastructure Corporation Class A - BIPC - 0 for 5'er

• Quanta Services Inc. - PWR - 5 for 5'er

• Blink Charging Co - BLNK - 0 for 5'er

Repair and Improvement of Waterworks/Clean Water/Wastewater Infrastructure

• Clean Harbors Inc. CLH – Clean Harbors Inc. has a variety of business segments, but one of them is wastewater treatment in which they offer treatment technologies for liquid and semi-liquid hazardous and non-hazardous wastewater. From a technical standpoint, CLH is a 3 for 5’er that ranks 3^rd (out of 18) in the Waste Management sector matrix.  The stock has maintained a positive trend since November of 2020 and near-term positive RS versus both the market and its peer group. On the chart, CLH rallied above its May rally high earlier this month when the stock moved above the $97 level for a new high at the time. After a brief pullback to $94, the chart moved back into a column of X’s, breaking a double top at $98 for a second consecutive buy signal, before moving up to a new all-time high on the chart at $100.  CLH can be considered in the $97 to $100 range at this time. Initial support lies at $94, while additional support can be found at $90, the July pullback low, and the bullish support line upon a reversal into O’s.

• Evoqua Water Technologies Corp. AQUA – AQUA’s primary focus as a company is wastewater management, filtration, and a variety of other segments that focus specifically on water. AQUA is a 4 for 5’er that ranks 1^st (out of 49) in the Utilities/Electricity sector matrix. Evoqua has maintained a positive trend since May of 2020, near-term positive RS versus the market in June of this year, and positive long and near-term RS versus its peer group. With recent action, AQUA broke a double top at $35 for a second consecutive buy signal before rallying up to the $36 level for a new all-time high on the chart.  Okay to consider partial positions at current levels or a full position on a pullback to $33 on the chart. Initial support lies at $31, while additional support lies at the bullish support line, currently at $23. 

Other Stock Ideas:

• Middlesex Water Co - MSEX - 5 for 5'er

• Watts Industries, Inc. - WTS - 4 for 5'er

• American Water Works - AWK - 1 for 5'er

Infrastructure Investment and Job Act-related ETFs

In continuation of our FSM models update featured in yesterday’s Fund Score Overview, we will look at how the seasonal update impacted the fixed income and variable annuity models. As a refresher, the FSM seasonal models are evaluated four times a year at the beginning of each seasonal quarter, so at the beginning of February, May, August, and November. At each evaluation, the models will sort their respective inventories by fund score, seeking to only hold those funds that possess the highest scores. The number of securities held is dependent on the model, but will typically be two or five names. For more information on the construction of the FSM models, please visit our FSM model guide.

Fixed Income Models:

Only one of our four fixed income FSM models made a change with the FSM Franklin Fixed Income ADV 2S PR4080 selling out of the Franklin Convertible Securities Fund (FISCX) and buying the Franklin Floating Rate Daily Access (FAFRX). The convertible bonds asset class was arguably the strongest area of fixed income over the last year as its high correlation to equity markets acted as a tailwind, however, that has cooled off over the past couple of months. With floating rate bonds replacing convertibles, a move higher in interest would actually be beneficial for this allocation as floating rate bonds benefit from rising interest rates. The model still maintains its exposure to emerging market debt, so there’s a 50/50 split between US and non-US exposure.

Variable Annuity Models:

Two out of the four variable annuity FSM models made changes this week. As a reminder, the variable annuity models use proxies to represent the subaccounts in the corresponding variable annuity. While we’re unable to find proxies for the entire subaccount suite of the variable annuities, we have a well-rounded lineup of proxies that represent a wide majority of the subaccounts.

The first variable annuity model that made changes was the FSM Jackson Perspective/Elite Access VA 5S PR4050 which moved out of the Oakmark International I (OAKIX) and DFA US Small Cap I (DFSTX) to buy the WCM Focused International Growth Inv (WCMRX) and the USAA NASDAQ-100 Index (USNQX). These trades match the overarching theme established in yesterday's model review, as many models moved out of small caps and value in favor of large caps and growth. The model is now overweight large caps and growth names, with high exposure toward technology.

The second variable annuity model that saw changes was the FSM Nationwide JNM VA 5S PR4050 which turned over three funds. The model moved out of two mid-cap funds and one all-cap fund while buying three large-cap funds, leaving over half the exposure to be focused on large-cap growth. The model now overweights technology at 33.03% and consumer cyclicals at 17.12%. Just like the Jackson Perspective model, we see the overarching theme of the broader FSM model update highlighted once again in these changes. Large caps and growth are replacing small caps and value, which we have touched on quite frequently over the last few weeks. Complementary to the benefit of using rule-based models to make decisions and trades, we can also use them to help identify changes in market trends. Using the Asset Class Group Scores page in conjunction with the FSM models, we have a variety of methods to stay on top of market trends and changes.

Daily Option Ideas for August 6, 2021