Douglas Busch

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So far Douglas Busch has created 2199 blog entries.

Technology Sector Overview: 10/8/18

Technology Review:

  • Market tops are often achieved in volatile fashion, unlike the bottoming process which tends to be rounded and smooth. The Nasdaq displayed that type of action this week, especially in the latter half as Thursday-Friday period lost nearly 3%, in hefty volume. To add to the bearish narrative, everyday this week CLOSED in the lower half of the daily range, and the 3.1% weekly slump was the largest since the 6.5% cratering the week ending 3/23. The only other larger weekly loss of 2018, besides this week, was the week ending 2/9 which slipped 5.1%, and both of the aforementioned weeks were quickly comforted bit its rising 200 day SMA. The good news the index is about 3% away from that secular line now, but the more times it is touched the more fragile the support becomes. The question arises will this turn out to be another very abrupt V shaped pullback we have become accustomed to, or is it the start of something more sinister? Of course no one knows for sure, but the technical damage is becoming unnerving. The week ending 9/21 recorded a doji candle, which tends to indicate exhaustion in the prevailing trend, and the engulfing candle at all time highs this week in bulging trade should give bulls pause. The behavior of leading stocks was yet another warning. With the abundance of unfavorable circumstances currently, the quote "if it is obvious, its obviously wrong" is something the bulls can hang there hat on, perhaps the only thing besides seasonality. And from a contrarian perspective, with an overwhelming negative sentiment here, maybe a bottom will be put in place next week. However, before acting on it makes sure PRICE confirms that a tradable low is in place, by the way of a bullish candlestick pattern.

Comparing Software/Semiconductors:

  • Arguably two of the most influential subgroups within technology are the software and semiconductor names. We know chips are in nearly everything we purchase and the cloud, supposedly is ready to take over the world. I will let others determine that, I just focus simply of the PRICE action of the charts. Below we witness the contrast between the sectors and the Nasdaq itself. Notice how from late last December-March they are traded nearly in tandem, until software began to act anything but soft. One of the things I most take away from this is just how well overall the Nasdaq has acted, even with little contribution from the semis. The SMH registered a break below a long WEEKLY symmetrical triangle this week, so I still have to be convinced technically that the group should be released from the penalty box. Adding to tech worries is the heaviness felt within software recently, and that combination has many comfortable raising cash, until strength reemerges.

Examples:

  • One of the big benefits of technical analysis is knowing when you are wrong. Adhering to tight stops helps in keeping losses to a minimum, even if it happens to be a former best of breed play. In my humble opinion the chart will speak to you well before the fundamentals, as to when a bearish, or bullish trend change is taking place. Below is an example and the chart of VSH, an electrical components play, and exactly how it was presented in our Technology Game Plan from 9/28. The stock is on a current 5 week losing streak down by a combined 22%, and lower 8 of the last 10. Looking back this name was a leader rising 63 of 96 the weeks ending between 1/22/16-11/24/17 that began at the very round 10 number. The round number theory also came into play recently, with the 20 figure being a neckline in a bearish head and shoulders formation, and the stock now sits 28% from most recent 52 week highs.

Industrial Sector Overview: 10/5/18

Sector Outlook:

  • The industrials have been holding their own very well, during this recent market uncertainty, and that type of action should be applauded. On a one month basis it is the second best major S&P sector performer out of 11, higher by more than 3%, lagging just energy. On the chart below their is something for the bulls and bears to admire. In tennis speak, it is still advantage bulls as the uptrend is alive and well, but their is some stalling action at the round 80 number, and the doji candle Wednesday suggests a breather may be in order. The largest component BA has masked some problems elsewhere in the fund, but overall names like CAT are holding their own. Others can not make the same claim. It was not long ago many were pounding the table on ZTO, being a Chinese play of course is not helping, but the stock is now 30% off recent highs made just this July. Other reliable industrials like WCN are looking somewhat fragile. As always try not to paint all industrials, or individual names in any other sector, the same and focus your buys on charts exhibiting relative strength and shun those doing the opposite.

Transport Influence:

  • The transport space makes up a good portion of the industrials, and the IYT is now back underneath an 8 month cup base breakout trigger, but the fund has to be given credit until it does not deserve it any further. It is still well above its rising weekly 50 day SMA, and is holding above the very round 200 figure. Like stocks, ETFs can find climbing above round figures difficult as witnessed below as it jumped above 200 on a weekly CLOSING basis the week ending 1/12 rising more than 4%, but it only lasted three weeks. The fund did not CLOSE above 200 again until the week ending 8/17, and has done so the last 8 weeks (CLOSED precisely at 200 week ending 6/15). The bulls obviously want former resistance to become support. FDX will have a big say as it is the ETF's largest component making up nearly 13% of the fund. UPS used to be its red headed stepchild, but while both have performed similar in 2018, with FDX down 4% and UPS by 2%, the dividend yield on UPS is 3.1%, compared to FDX at 1.1%.

Examples:

  • One would have to been living under a rock not to be aware of the weakness in the homebuilders, and this was BEFORE the recent surge in rates. One would say perhaps they anticipated that, but PRICE action is omnipotent. The group came into the year on fire as the ITB rose 18 of 21 weeks ending between 9/1/17-1/19/18 (three down weeks all fell less than .7%). A bearish engulfing week the week ending 1/27 saw huge follow through the next 2 weeks as the ETF slumped 12.4%, both accompanied by the strongest weekly volume in almost 3 years. Even leaders that held up well into the teeth of the storm have finally succumbed with SITE down 18% the last 2 weeks and this one by 5.7% heading into Friday. Below is the chart of SUM and how it appeared in our Industrial Report from 9/24, and it has been chopped in HALF since highs made back in late January.

Energy Sector Overview: 10/4/18

Sector Overview:

  • One would not be out of line to question the character of the recent leadership, as energy and healthcare have come to the forefront. Bull markets want to be led by the likes of technology, discretionary or financials, but leaders need a chance for a prudent pause. Rotation is a healthy event, and other sectors will often fill in as leading groups rest and regather stamina. Energy has played that role and there is no reason why it can not continue. Crude prices are rising, in tandem with the greenback, an odd development but one to be respected. It was not long ago all the chatter was AAPL being the first one trillion dollar company, and heard in the media was that oil prices needed to remain elevated until the Aramco IPO, which of course has been shelved (was supposed to be a TWO trillion dollar company if the financials were to be trusted). The XLE is now higher 14 of the last 17 sessions and nearing a double bottom trigger of 78.10. A decisive move through there makes the right side of a long WEEKLY cup base look solid, that has room to the very round par figure where the XLE was stopped back in June-July '14.

Equipment/Drilling Plays Percolating?

  • The drilling space within energy has lagged the exploration plays, but that gap is narrowing. The OIH is still vastly underperforming as the XLE as it trades 14% off its most recent 52 week highs and the XLE sits just 2% off its. I am not a mean reversion guy, but the OIH can certainly accelerate its recent strength, and that does not mean the XLE has to back up. It comes back to the classic, "know what you own" and the OIH's two largest holdings comprise 35% of the fund. A bit too concentrated for my liking, however if HAL and SLB which are off by 28 and 22% from their respective 52 week highs, can get going it can catch fire. This ETF is still in the penalty box, until it proves it does not belong. The first step is to break above its 200 day SMA, and until that occurs consider this nascent strength a dead cat. A sleeper in the space could be the former best of breed PTEN which recorded a double bottom with intraweek lows of 14.83 and 14.60 (arithmetic) the weeks ending 8/25/17 and 7/27/18.

Examples:

  • I am a big believer in watching new issues intently, as they are often overlooked and therefore underfollowed. Of course I would not recommend purchasing right out of the gate as their would really be no technical catalyst. One should wait for a base to form just like any other chart, and below is the chart of SOI and how the name was presented in our energy Game Plan last week. It is an equipment play that is still in bear market mode 22% off most recent highs made back in the first week of January this year. Notice the week ending 1/12 recorded a bearish reversal recording a dark cloud cover pattern that ignited the softness from the beginning of 2018 until the summer. The stock has risen by a combined 22% the last 3 weeks and this week is off by 1%, and can be forgiven as it consolidates that recent move. The round number theory comes into play here as the 20 figure halted its progress the week ending 5/11. Add to above a 20.28 double bottom pivot in a base one year long. The longer the base the greater the space higher, IF the breakout occurs. 

Consumer Sector Overview: 10/3/18

Sector Overview:

  • The world of retail is a genuine gauge on the sentiment of the consumer. There certainly are some headwinds here, as oil prices and interest rates rise surprisingly in tandem. Of course this will bite into their discretionary capital, but if wage gains continue to creep higher, even though they are simply keeping pace with inflation, that could invigorate purchasing behavior. A bit of a conundrum, and why I rely on PRICE action as that is the ultimate decider if we are correct or not. We know many retail names have gone the way of the technology subgroups semiconductors and software. This is a bearish development obviously. We gave examples in last weeks consumer report like FND, a former leader, now looking at a 6 week losing streak and has been chopped in half from highs made back in April. Unfortunately there are more to add with the likes of FOSL and LE both lower by 37 and 48% respectively from recent 52 week highs. With each week it seems more potholes are rearing their ugly faces. 

Group Performance:

  • Concerning overall is the softness displayed by the Russell 2000, which slumped 1% Tuesday and is now nearly 3% above the line in the sand, round 1700 figure. I highlight this as the XRT is dominated by small cap plays, which will be weighed down by the Russell. Today the ETF plummeted 3.3%, its worst loss in well over a year, in volume the second strongest of 2018 thus far. It is now on a 4 session losing streak, and down 7 of the last 8, and CLOSED well below its 50 day SMA. The fund is now well below a 51.06 cup base trigger, and breakouts that fail so quickly should not be ignored. On a weekly basis it has surrendered 3.8% with just 2 days in, and a CLOSE below the very round 50 number Friday would be the first in 9 weeks. This slump looks very reminiscent of the financials debacle last week with the XLF cratering 4%. The consumer is on alert, and it is no coincidence that this section is highlighted blue as it could be very well how they are feeling.

Examples:

  • In rangebound markets one will be able to quickly decipher which names are holding their own against peers. In the gaming segment of the consumer group there have been some interesting developments. EA for a long time had been considered the undisputed leader, but its chart has since become unhinged. It now trades well into bear market territory, lower by 23% from most recent 52 week highs (on its weekly chart could be bottoming with three consecutive bullish hammers the weeks ending between 9/7-21 that also CLOSED taut all within just .75 of each other). Below however is a name that has shined in the space ATVI, and how it was profiled in our Thursday 9/27 Game Plan. It now trades above both a bull flag trigger of 82 and a cup base trigger of 81.74 on 9/27, and is on a 5 session winning streak. Look for the round 80 number to be a floor going forward.

Healthcare Sector Overview: 10/2/18

Sector Overview:

  • In the overall markets today we witnessed more chatter about what many have been talking about recently. Is value finally going to begin to outshine growth, something it has not done in over a decade? Today there was huge bifurcation with the more conservative Dow and S&P 500 clearly acting better than the Nasdaq and Russell 2000, the latter two indexes both fell Monday by .1 and 1.4%, with the Russell a real outlier. Healthcare overall is often interpreted as a value group, although we obviously know there is biotech inside. Below shows how the XLV is leading the IBB by the slimmest of margins since last December. Notice how volatile the biotech space has been as the green line is erratic, while the XLV drudges along in a smooth, unassuming manner. The IHI which we discuss later has bested the two other peers by a double, and do not look for that to change drastically going forward. Locate strength, then buy your best of breed companies.

Examples:

  • There are very few successful turnarounds in names in any sector, that comeback from the depths of being down from near 240 back in August '15 to an 8 handle in April of '17. But that is just what the chart below, BHC and how it appeared in our Tuesday 9/25 Game Plan, did and it should be given credit for doing so. The CEO, Joe Papa, must be admired for the work he has done since taking over the helm in May '16. I however just focus on PRICE action and this name and it has tripled since the intraweek lows made back during the week ending 4/28/17. It is prone to streaky runs higher and the current situation is no different as it is on a 3 week winning streak up by a combined 23%, and this week is off to a hot start already. Most important is how well it is acting POST breakout from the double bottom breakout trigger of 24.96 on 9/20. We know the best breakouts tend to work right away and offer additional buy points on the way UP, and one can add to above a cup base pivot of 27.89.

Relative performance:

  • Like every group there is a diverse group of subsectors embedded within. When one identifies which specific ones are acting the best, one chances of success increase dramatically. The devices have been hard to ignore for a long time as the ETF has advanced 19 of the last 25 weeks, and is a great example of trends in motion tending to stay that way, rather than reverse. We have spoken of the positive action in the biggest components like MDT and ABT, the former wrestling with the very round par figure presently and the latter now on a 10 session winning streak. But one can point to DHR, the fifth largest stock in the fund which was in the news today somewhat as its former CEO will now run GE, a company now trying to decide what to do with their healthcare unit. Perhaps the hire is no coincidence. Danaher is on a current 5 week winning streak and lost ground just 4 sessions in all of September.