US equities were sharply lower in Thursday trading, falling by more than 3% on the day. Financials and Industrials were the worst performers. Defensive sectors and Health Care outperformed but all sectors closed lower on the day. Treasuries were stronger with some curve flattening and the 10-year remaining under 1%. The dollar was weaker on the major crosses. Gold finished up 1.5%. WTI Crude settled down 1.9%.
With markets under pressure, we find that a helpful exercise is to look for the areas of the have exhibited the best relative strength. The Invesco QQQ Trust has a Bullish Chaikin Power Gauge ETF Rating and has seen the intensity of its relative strength increase this week. The OB / OS Indicator is moving higher in an oversold position but Chaikin Money Flow is bearish. The fund is below the long-term trend line but testing support in the $200 – $210 range.
Stock of the Day – Vertex Pharma. (VRTX) – Bullish Rating
Vertex Pharmaceuticals (VRTX) has a Bullish Chaikin Power Gauge Rating and has been leading the SPY since October. The OB / OS Indicators is rounding out of an oversold position and Chaikin Money Flow is bullish. VRTX is above the rising long-term trend line and has support in the $220 – $230 range. Above $215, VRTX is likely to continue to outperform.
The Chaikin Power Gauge Rating for VRTX is Bullish due to very strong earnings performance, very strong price/volume activity and positive expert activity. The stock also has poor financial metrics. VRTX’s earnings performance is very strong as a result of high earnings growth over the past 3-5 years and better than expected earnings in recent quarters.
Take-Away: Risk aversion remains firmly at play in the markets. We have been writing that the fact that the S&P 500 fell into correction territory last week increases the odds that the lows are likely to be retested. Should that be the case, we will look for signs that the retest is less intense than the original low. At the same time we would want to see the key themes in this note begin to point to less fear on the part of investors.
In the interim with two-way volatility remaining elevated, the best course of action may be to remain extremely selective when adding new ideas to the portfolio and to strictly manage risk on any open ideas until there are clear signs that a stable base is developing. At the same time, investors should try to identify the areas of the market that have shown the best relative strength as these are likely to be leaders when the market does stabilize.