2 Sectors That May Be Ready To Break Out

Posted by Bigtrends on August 5, 2016 2:37 PM

These two types of stocks will propel the market higher:  Trader

by Annie Pei

The S&P 500 (SPX) (SPY) has fallen into a trading range as of late, but one trader has identified two industry groups as drivers of another market rally.

Todd Gordon of TradingAnalysis.com took a look at Monday's top sectors, which featured information technology (XLK) and health care (XLK) as the two leading market sectors that day. Tech was up nearly 1 percent Monday morning thanks to strong earnings in the category, while health care was in second with a 0.5 percent rise.

At this point, the key to the next market breakout lies within two other sectors, Gordon contends.

The first group to watch is the semiconductors, according to Gordon. They have been a bit flat as of late, but he sees promising times ahead for the tech subgroup.

Looking at a 60-minute chart of the semiconductors ETF, SMH (SMH), Gordon points at what is called a "bull flag," which is a consolidation pattern that is thought to typically precede a breakout to the upside.

"The consolidation has certainly been in play," Gordon said Monday on CNBC's "Trading Nation." "But it looks like we're just about to break through this little downtrend resistance here, which will bring in more buyers in the SMH."

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The semis are currently up 19 percent year to date.

Gordon's second pick for a market breakout lies with biotech, another group that has seen an impressive run as of late. Coming off of a strong second-quarter earnings season, the Nasdaq biotech ETF, IBB (IBB), hit a sixth-month high on Monday morning, and Gordon believes the charts promise more room to move up.

"We've broken recent resistance that will now act as support around the $290 mark in IBB," he said.

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Given that semis and biotech look ready for another move up, Gordon also thinks that they're worthwhile trades.

"I'm going to be looking at trades on the long side in these two ETFs to break the broader S&P 500 out of the consolidation," he said.

Overall, Gordon sees both sectors as drivers of the S&P 500 , which has been "looking for some inspiration to push us out of this range that's been in play for over two weeks now."

Courtesy of cnbc.com

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