Douglas Busch

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ChartSmarter Friday Game Plan 1/12/18

Markets rejoiced Thursday with the Dow, S&P 500 and Nasdaq all higher between .7-.8% and all going out strong into the end of the session. More importantly was the action in the Russell 2000 screaming to an all time higher gaining 1.7%. The benchmark is often an indicator of future strength and a look on its chart shows the RSI just barely CLOSING above the 70 level, which suggests it still has room to run as this index touched the mid 80 last October. For the week, with one day left, the major averages are posting pedestrian gains of 1.1, 1 and .9% for the Dow, Nasdaq and S&P 500 respectively. The transports continue to put on a show now on a seven day winning streak and today the IYT drove right through the very round 200 number, pun intended. The ETF is now higher by more than 6% YTD and yet another space that just points to a energetic economy going forward.

Looking at individual groups its the same old story with energy outperforming and utilities underperforming. The trend is your friend. The XLE rose more than 2% Thursday and the magnetic pull toward the 78.55 cup base trigger we have been talking about incessantly is getting stronger by the day. The rally today was very strong with 7 of the 9 major S&P sectors gaining, and four rose 1.3% or more, and just two falling. The staples and utilities lost .1 and .4% respectively and that looks pretty uniform on a weekly basis too. Headed into Friday they are the only two sectors for the week underwater as the XLP is lower by .5% and the XLU by 1.5%. The XLU has now dropped 14 of the last 19 sessions and is now just above the very round 50 figure. It is looking for its fifth weekly loss in the last 6 with awful volume trends and if tomorrow CLOSES near here, will make all 5 finishing right at the low for the weekly range. The most powerful group so far for the week are the XLE and XLI both higher by 2.3%.

The financials have been very strong, with the XLF up 7 of the last 8 sessions and by 2% this week already headed into Friday. Keep in mind the ETF posted a 1.8% gain last week and a 5.1% jump the week ending 12/1 on double average weekly volume. If this group is not under accumulation I am not sure what the definition of the word is. Sure there will be some big earnings reports with JPM and WFC delivering tomorrow morning before the open. The group is very diverse and asset managers have been doing well, and so to have the credit cards name like MA, V, DFS and AXP. Not to be one to miss a party below is the chart of COF and how it appeared in our Monday 1/8 Game Plan. It had a few things going for it, one being the nice action POST breakout from a 9 month cup base trigger. We know the best breakouts tend to work out right away. It also failed to be intimidated by the very round par number which names are likely to do. The bull flag measurement still has 10 handles left, although I could not blame investors wanting to wait for a little weakness to enter.

ChartSmarter Thursday Game Plan 1/11/18

Markets put in another boring session Wednesday with the major averages all mildly red. The Dow, S&P 500 and Nasdaq all slipped in the .1% neighborhood (the Nasdaq and S&P 500 never saw green on the day, but the Dow did so briefly). They seem to be showing some potential stalling, most notably in the S&P 500 which Tuesday recorded a doji candle which often tends to signal the prevailing trend is losing steam. Keep in mind Januarys then last several years tend to be volatile and one should not be surprised to see the S&P 500 slip 100 handles from here which would be a move back to its rising 50 day SMA. That would also put an end to the chatter of not seeing a 3-5% pullback in over a year, and quite frankly would be productive. The Nasdaq's health is imperative here, and a good dose of medicine for it will be a strengthening of the semiconductors. Their has been some negative headlines with INTC recently, but the group was undergoing weakness beforehand. Keep a keen eye on the SMH, INTC is its second largest component, and the round 100 number. The ETF is showing follow through, falling 1.3% Wednesday, after Tuesday's bearish engulfing candle, which made a rough double top with the same type of candle on 11/22. Quite alarming to see former best of breed names LRCX and SWKS lower by 13 and 16% from their respective 52 week highs, as the SMH is just 4% off its own.

Looking at individual groups it was clear who was the winners as financials added .8%. Sure the big news of the day was China talking about treasuries which helped yields gain, which of course in turn puts wind behind the group. The XLF chart is a thing of beauty as it has gained 14 of the last 17 weeks, and by another 1.4% this week so far (8 of those weekly gains have been by 1.5% or more), and trades relatively taut and makes gradual price advances. Three of the four weekly losses in that time frame fell less than 1%. On the flip side it was the utilities, which tend to act in an inverse fashion to the financials, which can not seem to get out of their own way. The XLU slid another 1.1% and is now 11% off most recent 52 week highs. The staples were the third worst performer with the XLP dropping .5%, and they are one to watch to the upside in my humble opinion as the last 5 weeks have all CLOSED within just .34 of each other. That type of tight trade can lead to big moves if taken out to the upside.

We have been pounding the table recently about the strength in the paper and packaging plays and how they could be a harbinger for future economic strength. Jamie Dimon was just quoted as saying he thinks we could see a 4% GDP print this year and I do not think that is an outlandish statement at all. The names we have been discussing the last few weeks have all been domestic names like IP, PKG, GPK and WRK to name a few. But below is a Brazilian name, and how it appeared in our Wednesday 1/3 Game Plan, whose chart is packing some bullish traits, pun intended. It is showing nice relative strength this week higher by nearly 5% heading into Thursday and just recaptured its 50 day SMA after spending 5 weeks below it. The chart does have some negative aspects with a falling 50 day, but those looking for some international exposure who are trimming some US positions after a healthy run, may find it is a nice place to deploy capital. Keep an eye going forward on the next add on point above a double bottom trigger of 16.72.

ChartSmarter Wednesday Game Plan 1/10/18

Markets put in another lackluster session Tuesday as the Nasdaq and S&P 500 rose by .1%, and both of those benchmarks are now on six session winning streaks. The Russell 2000 was flat and the Dow rose .4% as the price weighted index was rewarded with the big move in BA. The stock blasted above a bull flag trigger of 300 last Friday and has been melting up ever since. The measured move is to 335 so there is still some juice left in the tank. It is higher impressively 20 of the last 27 weeks and powered higher last week as it broke through a very taut range with the 3 weeks ending between 12/15-29 all CLOSING within just 1.16 of each other. The break above a cup base trigger of 162.61 for IBM is helping the index along too. Eighteen of the thirty Dow stock are now trading above double digits.

Looking at individual groups it was the healthcare and financial names that were standouts with the XLV rising 1.1% and the XLF adding .8%. The XLV is already higher by .8% this week, very strong following last weeks move up of 3.1% and the XLF is showing nice momentum following its break above a small bull flag which has another 1.5 handles to run. The healthcare sector was supported by fine action in the biotech arena with the XBI advancing nearly 3% Tuesday and on Tuesday completed a handle on its cup base. The potential trigger is 88.92 just under the very important round 90 number. That area was rejected strongly dating back to the weeks ending 7/17-24/15, and a break above there could really ignite the space. The consumer staples, materials, technology and energy basically sat out todays lukewarm move higher and it was the utilities which were the clear laggards on the session with the XLU falling 1%. Volume has been heavy on the recent selloff making the rotation out of the group easy to spot. Put this sector in the penalty box until it can CLOSE above its 200 day SMA.

The formerly moribund auto group has been firing on all cylinders as of late, pun intended. Of course I am purely a technician so I do not spend time on the why, just the PRICE action. Perhaps its the self driving, or electric seemingly going more mainstream all the time. It does not matter to me. The group is behaving bullishly and we know this because price is truth. Whether you look at TSLA which has continuously found support at the very round 300 number dating back to last April, or the better chart complexion of GM, the action is undeniable. Certainly there are names that play a supporting role in the parts area, and below is the chart of APTV and how it appeared in our Wednesday 12/13 Game Plan (former ticker DLPH). The stock broke above an 84.81 double bottom trigger on 11/20 and retested that breakout and held firm with an initial retest of its rising 50 day SMA in mid December. Adding to the bullish stance it did fill in a gap on 12/14 from the 11/17 session and is now on a current 6 day winning streak up by 9% in the timeframe.

ChartSmarter Tuesday Game Plan 1/9/17

Markets put in a dull session Monday with most of the major indexes finishing the day near the UNCH line. The Nasdaq however did add .3% and its nascent strength is certainly a welcome sign for investors. It is on a 5 day winning streak and 4 of the 5 CLOSED right at highs for the daily range, a bullish trait. The S&P 500 rose almost .2%, but more importantly it has started '18 off with a 5 session winning streak, like the Nasdaq, and is up almost 3% YTD already. A stat I read today reported by Ryan Detrick stated that when this occurs, and is has done so 15 times, it has ended the year higher 15 of 15 times. And the gain is nearly 20%. Of course there is no guarantee but bulls have to be feeling confident. Hopefully cautiously so. The Russell 2000 closed at an all time high and one can make the case that it edged above a bull flag formation with a flagpole beginning at 1460, so a measured move could run another 100 handles.

Looking at individual groups to begin the week, we saw some curious action with the lagging utilities leading with the XLU higher by .8%. The ETF rose just 9 sessions in all of December and is still firmly entrenched below its 200 day SMA, where good things rarely happen. Energy was second best and this group has been acting the exact opposite of the utilities as of late, meaning its white hot. The XLE added .6% and is quickly approaching the 78.55 cup base trigger we have discussed recently in a 13 month base and we know the longer the base the better chances of a breakout holding. The ETF is on a current 3 week winning streak, and to demonstrate how weak the space has been recorded only one other streak like that since December of '16, that being the 6 week winning streak between weeks ending 8/25-9/29. The only sectors to lose ground Monday were the financials and healthcare. They fell just fractionally and CLOSED in the upper half of their daily ranges and the XLF and XLV are both in nice overall uptrends, so a day to rest was nothing to be ashamed about.

We have always been big believers in the round number theory. Some may think it is elementary, but keeping things simple sometimes can pay big dividends. Also one wants to keep an eye on names that shrug off weakness in their particular sector. A good example of both of these is seen on the chart below of WAT and how it was profiled in our Thursday 12/7 Game Plan. Monday healthcare was the laggard but the stock rose 1.2% and now on an impressive 5 session winning streak up by nearly a combined 6% in the process. It has also blasted above the round 200 number which was its trigger in a goof looking bull flag formation. The stock was unable to muster any strength above the 200 number since touching it on 10/27. On 11/20 it CLOSED slightly above the 200 figure, but was quickly turned away and on 12/4 recorded a huge reversal, finishing 7 handles off intraday highs. This breakout carries a measured move now to 222, and the 200 area now should be very good risk reward going forward.

ChartSmarter Monday Game Plan 1/8/18

Markets started 2018 on a very high note which will most likely be hard to duplicate. The Nasdaq rose 3.4% for the week and was the best performer out of the major benchmarks. It also registered its best weekly gain in 13 months, and investors have more of a risk appetite when it leads. The round 7000 number was firmly taken out on Monday and the tech rich index rose everyday this week. Looking back at the previous big, round numbers the 5000 figure was retested and held on 11/4/16, and 6000 the same on 5/18/17 so it would not be out of order for it to do so once again. Of course that is just a 2% drop from here and it now trades 300 handles above its rising 50 day SMA. The S&P 500 took out its own round 2700 number with ease and a bull flag too in the process. It rose 2.6% on the week followed by the Dow up 2.3 and the Russell 2000 up 1.6%. This robust start to the year bodes well and keep in mind the Dow was up 25% in 2017 and since 1950 that has happened only 10 times. However the next year is HIGHER 8 out of the 10, with 6 of the 10 up by double digits.

Looking at individual sectors to conclude the first week of the year, only the energy and utilities dropped Friday with both the XLE and XLU by just a few pennies each. Leading today was technology as the XLK rose 1%, followed by healthcare, materials and cyclicals all rising in the .8% neighborhood. On a weekly basis the XLK advanced 3.7% to score its best gain since the week ending 12/9/16 which jumped 4.2%. Its RSI has been resolute at the important 50 number for the last 6 months to keep it in the bullish zone. Incredibly with the weekly return it was outdone by energy and materials each rising 3.8%. Other groups adding more than 3% were healthcare and discretionary, as the XLV and XLY both were up by 3.1%. The only major S&P sector to retreat was the utilities as the XLU sank 2.6% and has receded 4 of the last 5 weeks and is now in correction mode 10% off most recent 52 week highs. Apparently even some M&A activity in the group could as the laggard SCG and D teamed up. To give you an idea of how weak SCG has traded it still sits 39% off most recent 52 week highs even AFTER this weeks powerful 13.2% advance.

We have been stressing the importance of a strengthening economy recently and the many groups that could benefit. Today we will look at the paper and packaging names. Obviously if the economy is growing consumers will be making purchases which will use these stocks products. It is always important to see peers acting well as you do not want your name doing all the heavy lifting. We profiled IP GPK and others have been thriving with PKG jumping more than 6% this week alone. Below is the chart of WRK and how it appeared in our Monday 10/16 Game Plan. It broke above a 60.46 cup base trigger on 10/20 and was comforted by its rising 50 day SMA not to much longer after that. The round 60 number was important as it was resistance the weeks 7/3-10/15 and it has digested that move bullishly as the last 3 weeks all CLOSED very tight with .62 of each other. That type of action could lead to explosive moves and thats just what we saw as this week sprinted higher by 6.5% on above average weekly volume, even during a holiday shortened one.