Why these two stock-market sectors need to be treated with caution

By Jamie Chisholm

The usually positive fourth quarter is near, but some technical signals leave this analyst wary

So much for Septembear!

Any investor worried into trimming their portfolio because of warnings that the current month on average offers a bad return for stocks will be mightily miffed.

There's just two more trading days of September to go and the S&P 500 SPX sits at a fresh record close, its 42nd of the year, having gained 1.7% for the month to date.

Jeffrey Rubin, the president and director of research at Westport, Conn.-based Birinyi Associates - who now owns the firm following the death of the legendary Laszlo Birinyi - is among those who is dismissive of traders paying too much attention to such narratives.

"People often ask us why we do not incorporate seasonalities into our investing process...Seasonalities might be interesting and are good for a sound bite or two, but too often and most importantly, they are not profitable," says Rubin in a new note.

However, though Rubin is skeptical of such supposed seasonal hexes, he is prepared to entertain the technical runes. And that's left him wary about two portions of the stock market.

First, is the technology sector, as tracked by a Nasdaq 100 exchange traded fund, the Invesco QQQ Trust Series I QQQ, and the Technology Select Sector SPDR ETF XLK.

He is at pains to stress that Birinyi has not turned negative on technology. But his neutral rating reflects that the QQQ and XLK have been "mired" in wide trading ranges since early June. This means investors should not buy when the indices are at the top of the range, thinking they will move higher, but should buy when they're at the bottom of the range.

"In other words, smaller bites and shorter time frames are now appropriate for the Nasdaq 100 and the technology sector ETF until the current range bound trading changes," says Rubin. The ranges are $203 to $233 for the XLK and $443 to $496 for the QQQ, he adds.

Another chart that has Birinyi concerned is that of the S&P 500 energy sector, as tracked by the Energy Select Sector SPDR ETF XLE. Rubin considers the sector to be in a downtrend. "As a result we will be avoiding investment purchases of energy-related companies as very few of the 22 members in the sector qualify as a buy, sans the pipelines. A trade here or there might be appropriate, but nothing more."

With the XLE in the middle of its range, such trades would include trimming long positions into any rally. "Especially so since the price of oil is 26% lower than this time last year and, barring a major crisis in the Middle East, is unlikely to revisit the highs seen in 2023," says Rubin.

Energy sector members Birinyi says are in an uptrend are Williams (WMB), ONEOKE (OKE), Targa Resources (TRGP), and Kinder Morgan (KMI). Those in a neutral trend are Exxon Mobil (XOM), EOG Resources (EOG), Baker Hughes (BKR), and Marathon Oil (MRO).

Those in a downtrend are Chevron (CVX), ConocoPhillips (COP), Marathon Petroleum (MPC), Phillips 66 (PSX), Valero Energy (VLO), Hess (HES), Occidental (OXY), Diamondback Energy (FANG), Halliburton (HAL) , Devon Energy (DVN), EQT (EQT), Coterra Energy (CTRA), APA (APA) ,and Schlumberger (SLB).

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are a tad lower as benchmark Treasury yields BX:TMUBMUSD10Y also dip. The dollar index DXY is a fraction higher, while oil prices (CL.1) are little changedand gold (GC00) is trading around $2,664 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5745.37    0.56%   2.74%   20.45%  33.62% 
   Nasdaq Composite                                                     18,190.29  0.98%   3.85%   21.18%  37.79% 
   10-year Treasury                                                     3.788      4.40    -12.00  -9.29   -79.13 
   Gold                                                                 2683.5     1.38%   5.82%   29.53%  43.92% 
   Oil                                                                  67.57      -5.16%  -8.26%  -5.27%  -25.56% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor's Business Daily.

The buzz

The personal consumption expenditure price index for August will be published at 8:30 a.m. Eastern. The PCE is the Federal Reserve's favored inflation gauge.

Other U.S. economic data due on Friday include advanced trade balance in goods, advanced wholesale inventories, and advanced retail inventories, all for August and all published at 8:30 a.m. The final reading of consumer sentiment for September will be released at 10:00 a.m.

Federal Reserve Governor Michelle Bowman will speak to bankers in Alabama at 1:15 p.m.

Bristol Myers Squibb shares (BMY) are up more than 6% in premarket action after the U.S. Food and Drug Administration approved a schizophrenia drug.

The Japanese yen (USDJPY) strengthened sharply and Nikkei 225 futures (NIY00) gave up gains to lurch lower after Japan's ruling party on Friday picked former defense minister Shigeru Ishiba as leader. His rival, Sanae Takaichi, was seen as opposing higher interest rates.

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The chart

So much for the "dumb money" both exacerbating and becoming victims of a bullish frenzy. After buying the stock market's summer swoon aggressively, retail investors "have largely refrained from chasing equities higher in September," says Vanda Research. Still, retail flows into capital markets remain robust and currently sit at the three-year average of $1.12 billion pe day.

"The next set of hurdles - i.e., labor market data, the start of the Q3 earnings season, and the U.S. election - will likely dictate whether some of these underlying trends will sustain or fade in the coming weeks," Vanda adds.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   NIO     NIO 
   BABA    Alibaba 
   DJT     Trump Media & Technology 
   HOLO    MicroCloud Hologram 
   SMCI    Super Micro Computer 
   AAPL    Apple 
   MU      Micron Technology 

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-Jamie Chisholm

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09-27-24 0643ET

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