US Stocks Bullish catch up for laggards BAC C CAT post trade deal

Global financial markets are in risk on mode after US President Trump has agreed to the terms of the U.S-China Phase One “mini trade deal” that will put on hold the additional 15% tariffs on US$160 billion worth of China products that are scheduled to take place on 15 Dec. In return, China will increase significantly the purchase of U.S agricultural products and step up commitments to do more to stop intellectual property theft. In additional, both sides have agreed to roll back “certain portions” of existing tariffs in place.

In additional, the “risk on” animal spirts have also been reinforced by the latest round of U.S. Federal Reserve’s repo operations to add additional liquidity of US$365 billion into the short-term funding market through Jan 2020 to ease any potential freeze in liquidity as we head into the crucial year end period.

In a nutshell, risk assets are being supported by these “events” at least in the medium-term. We have covered much ground on the major stock indices and explained from a technical analysis perspective why the bulls are still in control plus highlighting the continuation of the outperformance of the high beta Nasdaq 100, Technology and Semiconductor sectors that are leading the “bull convoy”.

Right now, we will be highlighting some laggard stocks that can see potential rotation into the coming weeks given their respective upside momentum has just started from a “lower base”.

Relative Strength/Ratio charts

• The ratio chart of the laggards; Financial and Industrials have started to see signs of outperformance of against the market (S&P 500).
• The Financials / S&P 500 ratio has staged a bullish breakout after it has formed a base since Mar 2019.
• The Industrials / S&P 500 ratio has started to form and rebound from the support of its major 12-momth basing formation in place since Dec 2018.

Movement of US Treasury 10-year yield with Industrials & Financials

• The continuation of an upswing of “higher lows” seen in the U.S. Treasure (TNote) 10-year yield since 04 Sep 2019 is also supporting the on-going upside movement seen in the Industrials and Financial sectors

Bank of America (BAC) – Impulsive up move remains in progress

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• We had highlighted BAC in our earlier report dated on 22 Oct 2019 (click here for a recap).
• Key technical elements remain positive, we have adjusted the key medium-term pivotal support higher to 30.90 from 30.30 for a further potential up move to target the next resistances at 36.30 and 39.50/40.00.
• On the other hand, a daily close below 30.90 invalidates the bullish bias for a corrective decline to test the major support at 26.60 (also the lower boundary of an ascending channel from 11 Feb 2016 low).

Citigroup (C) – Continues to inch higher after bullish breakout from major descending resistance

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• C has started to evolve within an ascending channel in place since 26 Dec 2018 low. Bullish bias in any dips above 70.40 key medium-term pivotal support for a further potential up move to target 80.70 and 85.30 next.
• On the other hand, a daily close below 70.40 invalidates the bullish breakout scenario for a corrective decline towards the next support at 60.30.

Caterpillar Inc (CAT) – Moving higher after bullish breakout from 10-month descending resistance

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• Bullish bias in any dips above 134.90 key medium-term pivotal support for a further potential push up to target the next resistance at 159.30/161.35 (also a Fibonacci expansion/retracement cluster).
• On the other hand, a daily close below 134.90 invalidates the bullish breakout for corrective decline back to retest the major range support at 117.25/112.65.

Charts are from eSignal

Related analysis:

Stock Indices Weekly Technical Outlook: Mix bag while S&P 500 remains in an uptrend phase

Nasdaq 100: Impulsive up move likely resuming supported by Fed