Markets may have taken a little slow to the Santa Claus rally but the major averages began 2018 in jolly fashion. The Nasdaq which has been a recent laggard as it coasted into the end of last year, put on a nice show as the benchmark rose 1.5%. More importantly it broke above the very round 7000 number, which it was unable to accomplish on 12/18. Todays move registered as a bull flag breakout with a measured move of 260 handles. It was helped by strength in the big cap names like FB, AAPL, AMZN and NFLX all rose between 1.7-4.7%. The S&P 500 is shying away from its own round figure of 2700, but it put in an admirable performance rising by .8% and is looking for a bull flag breakout of its own. Keep in mind it is not unusual for a stock or index to be rejected at a round number only to come back and try again and be successful. Of course it could fail too, but a trend is more likely to persist than it is to reverse. The Russell 2000 added .9% and the Dow bounced back from a mild morning selloff to close higher by .4%.
Looking at individual groups one would come to the conclusion that 2018 started right where the previous year left off. Energy was one of the standouts Tuesday with the XLE advancing 1.6% and on the opposite end of the spectrum was utilities slumping .9% (the XLU keep in mind fell 6.4% last month). The XLE is now higher 13 of the last 19 weeks and one has to come away very impressed with last weeks UNCH finish after the prior week surged 4.7% and this week is certainly beginning in strong fashion. Sentiment in the group seems to becoming very bullish and that may be a concern but it looks to be gravitating to a long cup base trigger of 78.55 in a base more than one year long now. Beyond that I could see a move to the very round par number at some point this year, a level that was tough to see any momentum above dating back to June-July of ’14 (the very round 50 number played a role in a bottoming process with a huge 11% reversal off the figure the week ending 1/22/16). Curious was the financials not joining the solid start to the year as the XLK was basically UNCH.
As we reviewed the major S&P sector gains on a YTD basis in Tuesdays report, we did mention decent strength in the healthcare group. The XLV was up by 20% on 2017, basically in line with the S&P 500, but if you dig a little deeper into the space at sub sectors you will even better strength. The IHI, the medical devices ETF, rose by 31% in 2017, a tad better than the Nasdaq and clearly stronger than the IBB which advanced 21% last year. Below is the chart of SYK, the 6th largest component in the ETF, and how it appeared in our Wednesday 12/13 Game Plan. Its allure came from the successful gap fill at the very round 150 number on 12/7 from the 10/26 session. To start of 2018 on the right foot, pun intended, its broke above an add on buy point above a 156.99 double bottom trigger after a JPM upgrade. We prefer breakouts on now news at all but the PRICE action in this name has been superior as it sits right near all time highs. One can additionally add to above a 160.72 cup base trigger.