Douglas Busch

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So far Douglas Busch has created 2199 blog entries.

Energy Sector OverView: 10/15/18

Crude Peek:

  • Energy has been in the news plenty theses days as the price of crude which is still in the process of making higher highs and higher lows this year, even with the pullback this week with everything else. The chart below of WTI does show TWO failed cup bases recently above 73 and 75, and we know the best breakouts tend to work out right away. The old question arises does its strength speak for economic strength, or just supply and demand issues? Most likely a little bit of both, but the trend is still unquestionably higher. Of course that is a double edged sword as our domestic partners are benefitting, yet some of our enemies are doing the same, except not as much as in the past as sanctions are in place. Sure there will be other factors at play too, with Saudi Arabia news of the missing journalist. Although that country's role on the influence of oil has diminished over the years, as their reserves are not what they once were and OPEC has lost credibility.

Relative Performance of Energy ETFs:

  • Below is a comparison chart of the three major ETFs in the energy world. It is interesting to view the tight paths all three tracked from the beginning of January through the end of April. That is when the similarities ended. From May onward the XOP began to behave much better than the other two. It could be as simple as knowing what is in your ETF. The XOP is a much more diversified fund, with its largest holding MUR, chart in next paragraph, comprising just 2% of the vehicle. Contrast that with the XLE, whose top two components XOM and CVX represent nearly FORTY% of the fund. There are other factors at play here with the dividend yield of the XOP offering just .64% and the XLE yielding 2.68%. On a YTD basis the XOP has advanced 10.7%, against a nearly a very pedestrian 1% performance for the XLE. I prefer capital appreciation, many others yield. On the WEEKLY chart of XOM it slumped 4.6% this week breaking BELOW a three week tight pattern, a formation that often witnesses explosive moves. The oil behemoth had CLOSED the 3 weeks ending between 9/21-10/5, all within just .32 of each other.

Examples:

  • Energy continues to be one of the toughest to read of the major S&P sectors this year. Since the week ending 5/25 the XLE itself has witnessed 4 weekly losses of at least 3.5%. In that same time frame it has been unable to muster a weekly gain of 3%. Below is the chart of MUR and precisely how it was presented in our Wednesday 9/26 Energy Report. Unlike our FOUR shorts in this report, which all trade off their most recent 52 week highs between 19-30%, MUR has been stubborn in giving much back. It sits just 2% off most recent highs and is on a current 5 week winning streak, not a feat many can claim in this sector. The combined gain during the run has been 19% and all five have CLOSED in the upper half of the weekly range. Since the spring of '16 its weekly chart has the look of a bullish inverse head and shoulders pattern.

Healthcare Sector Overview: 10/12/18

Group Outlook:

  • The relentless downtrend continues, without showing much signs of abating. In the healthcare group the volume suggests that investors are being forced out, or they just throwing in the towel. If there were some positive reversals we could interpret it as capitulation, but nothing of that sort has played out as of yet. At least today there seemed to be a tug of war between bulls and bears until the important CLOSE, with the bears continuing to win the battles, but the war debate is still up for grabs, but the pendulum is siding with the bears. Keep in mind when markets display bearish traits, it is often associated with violent moves in both directions. The XBI is lower 11 of the last 12 sessions, after wrestling, and losing with the very round par figure since late June. Notice there were several warnings signs delivered via bearish candlesticks at the 100 figure too. The ETF has declined 21 of the last 28 sessions, but today did register an inverted hammer candle as it trades 17% off most recent 52 week highs. Perhaps a bounce here can be expected, but it most likely will be an opportunity to reduce exposure or head entirely into cash.

Leading SubSectors, Or Prior Ones For that Matter:

  • In this recent sea of overall volatility there have been few places to hide as stocks and bonds have fallen in unison, an unusual development. Add to that leading subsectors within dominant spaces starting to crack, and it is not a recipe bulls have concocted. Below is a chart of the IHI, the medical devices ETF, and last week it recorded its first bearish engulfing WEEKLY candle in more than TWO year dating back to September 2016. Couple that with the fact that it happened at all time highs, on well more than double average weekly volume, and this week is following through falling 5.4% headed into Friday, on the equivalent trade from last week with yet another session to go tomorrow. The fund is lower 7 of the last 8 sessions, with the last 9 CLOSING in the lower half of the daily ranges. The margin clerks have sharpened with number 2 pencils and are going after the winners of 2018 with vigor.

Examples:

  • Healthcare has been a firm performer as of late, but of course just like everything else it is taking a pause. The IBB is now 11% off most recent 52 week highs, but is still higher by 2.5% YTD, and the broader XLV has advanced 9% in 2018 thus far. With those type of returns it would be easy to identify losers, and ones that could not keep pace with a hot group are prime shorting candidates. Of course in this space you could have unexpected takeovers, but below is the chart of CLVS and how it appeared in our Monday 9/17 Healthcare Report. It is now 68% off most recent 52 week highs after hitting a roadblock almost precisely at the very round 100 number the week ending 7/28/17. It is down by double digits this week by just more than 10%, and is looking to CLOSE in the lower half of the weekly range 11 of the last 12 weeks. A trend is a trend whether up or down and should be respected as trends are more likely to persist that reverse.

Consumer Sector Overview: 10/11/18

Group Outlook:

  • The consumer discretionary names are joined at the hip with technology as sectors that are most sought after to lead. If either or both are under distress that is very rarely a good sign. The XRT is now in correction mode, off 11% from recent 52 week highs, and it was not long ago how many were talking glowingly about the ETF. I was among them as as it broke above a 51.14 cup base trigger on 8/14, but it failed quickly and we all know the best breakouts tend to work right away. We spoke of a possible double whammy with the fund, as many of its components are small caps and we know the Russell 2000 has imploded. The XRT is lower by 2% this week, and if it holds would be its first 4 week losing streak since March of 2017. Best of breed names like BURL have risen just 8 days since the beginning of September, and when you have frothy names like JCP showing up on the leaderboard, one has to know something is going on. To no ones surprise Sears filed for bankruptcy today as well.

Weak Individual Stock Performance:

  • Was the recent good action in the retail plays, after rebounding from a prior "Amazoned" slump, just a dead cat bounce? Well perhaps some names can feel some consolation as AMZN itself is starting to show cracks as it sits in correction mode, 13% off most recent all time highs. It did have issues with the very round 2000 figure as it was able to just muster two 3 day streaks CLOSING above the round number on 8/30-9/4 and 9/27-10/1. Even more concerning is that it CLOSED in the lower half of its daily range the last 9 sessions and it is comfortably below its 50 day SMA. On the chart below of LE, ANF, ETH, PVH, SFLY and TPR all at one time recently respected names, we can see how in the beginning of 2018, many of the names were ascending, and looking further right one can see the descent since summer time. SFLY alone is off 41% from its most recent 52 week highs, which not surprisingly reversed at the very round par number on 6/5.

Examples:

  • It has been very tough for bulls for sure as of late. To me the sentiment in this market is very bearish, and it became so in a very rapid fashion. Overall it should come as no surprise as the semiconductor and software names tipped off some foreshadowing. The tone now is certainly a sell the rally instead of buy the dip strategy. Getting back to consumer chatter below is the chart of a recent IPO BJ and how it was presented in our Consumer Report from 10/3. It is a good illustration of why number one, you demand CLOSING prices above your triggers. The stock looked as if it was trying to gather itself near a former cup base breakout trigger, and it did not deviate to far from undercutting its 50 day SMA. The 27.35 pivot was not crosses intraday or on a close so nothing should have been done, and those who attempted to front run the idea are now staring a large loss in the face. The chart is technically damaged and now is a no touch until a new base emerges which could be months if not longer away. In another words there are better fish to fry.

Financial Sector Overview: 10/10/18

Group Outlook:

  • The financials are always a space on the forefront of investors minds, as many like to say an overall rally without their participation is suspect. I do not necessarily agree, but their inclusion would certainly be welcomed. Of course it is a diverse group with insurance names, asset managers, etc., but the 4% weekly loss for the XLF, the week ending 9/28 is not easy on the eye, as the ETF was in the process of building the right side of a cup base that began late this January. It is too low to be considered a handle in the cup base, and the outsized weekly drop of 4%, was quite uncharacteristic for the fund since late March. The market is forward looking, typically about 6 months out so the lack of vigor in the sector could be seen as traders believing the 10 year yields are peaking here. It is true conjecture, but to me this area is to be looked at under a bearish lens, until the ETF breaks above the round 30 number.

Relative Performance:

  • No one can dispute the softness that has invaded the financial space. If one wants to make a contrarian argument, bulls may point to the fact that the "dumb money" is often wrong (re: retail investor). Perhaps the charts of SCHW and AMTD are trying to convey something. Both have been somewhat frail, with SCHW down 13% from most recent 52 week highs and AMTD 16%. The former has a better looking chart complexion as it holds the very round 50 figure very well and has a rounded, smooth bottoming formation. AMTD has the look of a bear flag, after a recent break below a symmetrical triangle in early September. As always one can come up with all the reasons they want and try to convince you of their bias until they are blue in the face, but the PRICE action is upon how we are judged. Respect it all the time.¬†

Examples:

  • The finnie space has many scratching their heads as the textbooks say they should respond positively to higher interest rates. As the saying goes, "textbooks are best used for kindling", and it is appropriate in this instance. As the 10 year yield rises, although Tuesday did stall, the banks have not been beneficiaries. Some of your traditional banks have acted well, with best of breed JPM only 4% off most recent 52 week highs. But compare that with MS and GS, different animals from years past for sure, lower by 22 and 19% from their recent highs. International names are not faring much better as BSMX ITUB and IBN have declined 21, 22 and 27% respectively from their highs. Below is the chart of C and how it was presented in our Friday 9/21 Game Plan. it is below the recommended pivot, but holding above the stop price, and finding support at its 50 day SMA which recently registered a bullish golden cross.

Drillers Delight?

Group Overview:

  • Energy has been a standout as of late with both the exploration and equipment sectors behaving well. The XLE and OIH are both enjoying current 4 week winning streaks, and the XLE was the best performing major S&P group advancing 1.9%. That action, with the rising price of crude, is having adverse effects on other groups like the cyclicals, which have consumer discretionary names among them (the XLY lost 4.2% this week in the second largest weekly volume in nearly 2 years). The OIH still has plenty of room to make up being off 14% from most recent 52 week highs, as the XLE sits just 3% off its own. But the drillers are narrowing the gap as their combined advance during its present 4 week winning streak is 10.1% compared to the XLE higher by 5.9%. And perhaps more impressive is that the OIH is rising despite the rig count falling for a third consecutive time this week. Directly below is the performance chart of the five equipment and services names we highlight today and how they compare with each other since last December.