Markets were hit Wednesday although not as roughly on Tuesday. The optimist would declare the Nasdaq and Russell 2000 “outperformed” as they were off less then the Dow and S&P 500. But it would be extremely notable if the Nasdaq were to shrug off Tuesday bearish engulfing candle. The bull trap it created yesterday looms large and it was noteworthy that the Nasdaq came back to challenge the 1/26 highs. Keep in mind it may be showing some fatigue in that it took so long to do so, as we were accustomed to just several sessions V shaped recoveries, and this recent one took 6 weeks. The quadriceps of the Nasdaq are fragile and no one can blame exhaustion here. That being said lets remember, I know it seems like the majority have very short memory, but the Nasdaq is lower by .8% last week, after the prior week sprinted ahead by 4.2%. Another reason why the tech heavy index may be weary.
Looking at individual groups it was the old boring utilities that were easily the best performer Wednesday as the XLU rose 1% and nudged its head back above the very round 50 number. It seems to be popping up now on a regular basis near the top of the sector rankings. The ETF is higher by 1.6% so far headed into Thursday and is looking for back to back weekly gains for just the second time in the last 3 1/2 months to demonstrate what kind of pressure the group has been under. Technology held in tough with the XLK lower by .1% and lagging were the materials and financials as the XLF and XLB were off by 1.2 and 1.3%. The XLI has lost ground everyday this week so far and is off 2.8% for the week so far. It has recorded a couple bearish candlesticks recently with the lower highs with a bearish engulfing and dark cloud cover on 2/27 and 3/12. BA cracking its 50 day SMA for the first time since September ’16 has a lot to do with that.
I am a big believer in patience, waiting for opportunities and not overtrading. One must pick his spots and then commit once the chance arrives. Below is an example of one of our favorite plays, entering on the initial touch of of upward sloping 50 day SMA following a breakout. The chart here is of VRSN and how it appeared in our Monday 2/26 Game Plan. This “old tech” star is up 43% in the last one year period and is higher by 2.6% this week so far, as the Nasdaq is DOWN .9%, and this is on top of last weeks 4% advance. The early February shakeout amid the market selloff created a nice looking double bottom pattern and it broke above a 116.74 trigger on 2/16 and is has gained 8 of the last 9 sessions, and the lone down day on 3/12 lost just .2%. It now trades at 17 year highs and has the look of a bull flag breakout last week above 118 which carries a measured move to 134.