Charts are strong for several defensive names from the health care and utilities sectors, says Greg Harmon. He’s using S&P sector ETFs to help gauge market strength, but he’s encouraged by Friday’s rally and is continuing to monitor earnings results.
Kate Stalter: Today, our daily guru is Greg Harmon of Dragonfly Capital. Greg, I’ve been following your tweets for awhile, and I enjoy that you’re very transparent in sharing some of your trades, so I do want to get to that in this conversation.
But first, you’ve written lately about the strength of utilities, health care, and some other defensives in the current market conditions. Tell us your view on that.
Greg Harmon: Yeah, thank for having me on, Kate. Certainly, there has been strength in the health care, utilities, and consumer-staples sectors that have been keeping the market from doing an all-out faceplant, in my opinion.
But lately, especially today, we’re seeing that that is starting to gain broad-based strength in the marketplace. I still like the defensive sectors.
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I’m playing several names now in health care that are breaking out to all-time highs. Things like Staar Surgical (STAA), Thoratec (THOR), Seattle Genetics (SGEN), and one that we played in my site Thursday, Athenahealth (ATHN), that had earnings yesterday and is back up at about $64.50.
You mentioned utilities as well, and there are several there that are making all-time highs. Consolidated Edison (ED) and Hawaiian Electric (HE) are two good names that I like, both with big dividends, too. Hawaiian Electric has got a 5% dividend on top of being at all-time highs.
Kate Stalter: Let me ask you this, Greg. If the overall market does continue to rally—and that seems very dependent on Europe and other issues these days in the headlines—but if the market does continue to rally, do you see some of these dividend-paying defensives perhaps being less in favor?
Greg Harmon: I see that they may not go up as fast as the rest of the market, but the charts on these stocks still look very strong. Especially the health-care stocks, the ones that I’ve mentioned, have really good charts.
They are—many of them—young companies, so I think that a broad market rally will rally them along with it, as well.
In general, looking at, say, the broad-based ETFs like the SPDR Utilities (XLU), the SPDR Consumer Staples (XLP), and the SPDR Health Care (XLV), you would expect that if the market rallies beyond where it is today—my benchmark for that is the SPDR S&P 500 (SPY).
I see a close today over $123.50, about where it is right now, as being pretty bullish on a weekly chart basis. If we get back above $125, other sectors like consumer discretionaries, things like the high flyers of the past, like Lululemon (LULU) and McDonald’s (MCD) even, which is making new all-time highs, should benefit greatly from that.
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Kate Stalter: You’re a technical analyst, a certified market technician. What are some of the general market signals that you would be looking for to confirm renewed strength on the equities indexes?
Greg Harmon: Well, as I briefly mentioned before, the S&P 500 ETF would be…a close above 123.50 today would be a bullish signal for me.
We’ve been trading in what I call a bear flag for about two months now. We’re just starting to break out of the top of that range. Another indicator there is the Nasdaq ETF (QQQ), which has had none of this, in terms of thinking that we might be headed towards a bear market or heading lower. The Qs are trading near their ten-year high and looking good still.
Something that we mentioned earlier, gold versus the S&P 500. Gold has been steady, starting to fall off a little bit. I think that’s more of a disconnect with the current markets than it is a reflection that gold is going lower.
The final key, I think, for market direction going forward is the dollar. Weakness in the US dollar should prop up the US market quite a bit. If we see the dollar reverse and start to rally strongly again, back above the 78.50-odd level, then I think you see a pullback in the stock market.
Kate Stalter: I mentioned a few minutes ago, Greg, that you do tweet frequently about your trades, and you mentioned a number of ideas already in this conversation. But is there anything else that you’re looking at, or that might be a watch list candidate or anything else that our listeners might want to research?
Greg Harmon: There are some industrial names that my group is following as well. Caterpillar (CAT), which reports earnings on Monday, has been very strong leading up into that, as well as the oil-services names. We like Exxon Mobil (XOM) and ConocoPhillips (COP), both good names. That’s a couple of good ones there, as well.
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