Douglas Busch

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ChartSmarter Friday Game Plan 12/22/17

Markets recorded a lukewarm session as the Russell 2000 showed some strength higher by .5% and the index has done everything a bull would want since the beginning of September. Since then it undercut its 50 day SMA very briefly and recaptured it in rapid fashion, a hallmark bullish trait. Mid November it bounced near the round 40 RSI number where leaders tend to find a floor and on the MACD looks to be breaking above a symmetrical triangle. The Nasdaq lagged as it recorded a shooting star candle rising fractionally and is feeling a bit of weight under the 7000 figure. It is being hampered by weakness in the semiconductor group, and speaking of round numbers the SMH is having issues climbing back above its 50 day SMA which aligns with the very round 100 number. It has been unable to make much headway since the week ending 12/1 lost 6%, its biggest loss in nearly 2 years (week ending 1/8/16 dropped 8.9%) that was accompanied by the largest weekly volume in last 5 years. I came away impressed with the fact markets shrugged off Bitcoin softness as it fell for a fifth consecutive session and today slipped nearly 7%. The S&P 500 rose .2% and is shying away somewhat from its own round 2700 figure.

Looking at individual sectors there were some very clear winners with energy yet again flexing its muscles. The XLE indeed did have a beachball effect above the round 70 number like we thought. The ETF is now higher by 4.5% this week heading into Friday, and if that gain holds will be its largest weekly gain since a 5.5% jump the week ending 4/22/16. Participants who fell they missed the boat may have an opportunity to enter next month, as January only CLOSES higher for the that month from the where it started the year just once in the last 5, before resuming strength in February-April. Honorable mention must go to the financials with the XLF advancing .8%, and one has to come away impressed with its action following the very robust weekly gain ending 12/1 that rose 5.2% in more than double average weekly volume. It now sports a bull flag formation with a buy trigger above 28.50 giving a measured move of 2 more handles higher. The XLU was once again was the worst acting group Thursday as it fell 1.2%.

As retail continues to gain steam with many claiming that tax reform will be a big beneficiary for them. I do not speculate on that type of stuff, PRICE action is all I need. The XRT is still humming along and grinding slowly higher after an 8% combined move the two weeks ending between 12/1-8, with BOTH coming in the best weekly volume in nearly 3 years. Now of course you will see laggards join the fray, and those are often a good opportunity to take advantage of a possible unjustified move. I have to say I would have said this recent powerful move by the overall group would have become somewhat suspect if perennial loser BBBY would have acted well after earnings. It did not disappoint me, rather shareholders with its third double digit loss after an earnings reaction falling 12.4% (9/20 and 6/23 dropped 15.9 and 12.1% respectively). Below is the chart of HBI, another weakling in the space, and how it appeared in our Tuesday 12/19 Game Plan. It recorded a bearish engulfing candle this Monday at 200 day SMA resistance and is now 5% lower from the suggested entry.

Past and Present View on CTMX

The healthcare arena has been a bit bifurcated this year with the IBB 7% off most recent 52 week highs and has found support at the round par number and is looking for a five week winning streak depending on Fridays CLOSE. I think it has room to 110 which would be the right clavicle in a bearish head and shoulders formation. The XLV is just 1% off its own most recent 52 week highs yet has repeatedly been pushed back at he 84 number. The medical devices ETF IHI is having a nice '17 up 32% YTD, while the XLV and IBB have advanced 21 and 20% respectively. Today we take a look at an immunotherapy name, a very popular treatment, that is public just more than 2 years and has a very promising chart. We will look at it on a shorter and longer term time frame here, and how one can enter and add to on strength.

Just below is an oncology play higher by 101% YTD and 92% over the last one year period, and even with those stellar numbers it currently sits 10% off most recent 52 week highs. The stock has backed off on light volume this week and just yesterday completed a handle on a good looking, taut cup base (handles to be considered legitimate should be at least 5 days in duration). It filled in a gap for those who missed the AMGN news related gap on 10/4 that sent the stock up more than 20% finding comfort at an upward sloping 50 day SMA. Enter CTMX with a buy stop above a cup with handle trigger of 23.10 and the chart further below will discuss the longer term picture and an add on buy point to pyramid up into.

ChartSmarter Thursday Game Plan 12/21/17

Markets put in a productive session continuing to digest the big run up and although they are overbought on an RSI basis, that does not mean they can not go higher as my friend Jonathan Krinsky of MKM eloquently wrote in his weekend note. "One indicator that has been talked about lately is weekly RSI, which has now exceeded 80 for the first time since 1995. Since 1928, there have been twelve other instances when the SPX’s weekly RSI has been above 80. While forward returns following such occurrences have far exceeded those for the average week looking out 2-12 months, it’s perhaps even more remarkable that in every instance the SPX was higher at some point either three, six or twelve months later. The message appears to be that any near-term weakness is likely a buying opportunity". The Russell 2000 was the winner today as it rose .22%, and it makes sense as capital will be repatriated back home in the tax reform package.

Looking at individual sectors it was energy the once again led the way and with the CLOSE above the round 70 number Wednesday, a figure that had become a nuisance lately, the long cup base trigger of 78.55 for the XLE now looks more likely to be touched sometime in the first half of '18. The ETF is higher by 2.4% heading into Thursday for the week, and a weekly finish above 70 would be very bullish as the last three were all above intraweek, but failed to end north of the round number (the last weekly CLOSE was 4/7). Lagging today were your traditionally defensive groups like healthcare, staples and utilities. The XLU is now less than 1% above its rising 200 day SMA and needs to hold that important line to maintain its series of higher highs and lows. It is being held hostage by rising yields, with the ten year right at 2.5% and looks poised to be magnetically pulled toward 2.6%, a level hit late last year and early this one. This will help financials and suggests economic growth is gaining steam.

With all the talk about GE as of late and I field many questions inquiring if it is a buy, which tells me it is probably still going lower. A name associated with the name in the energy space, the spinoff BHGE, is beginning to act a little better. Do not get me wrong it is still 29% off most recent 52 week highs, but its complexion is clearing up a bit. Below is the chart and how it appeared in our Tuesday 11/28 Game Plan. We had it listed as a short candidate but it has held the round 30 number very well with no weekly CLOSES below the figure since touching it in late October. The bull flag actually ended up breaking to the UPSIDE, and when names do the opposite of what is expected to happen, the move can be powerful as many are caught off guard. The stock is up more than 8% this week headed into Thursday and recaptured its 50 day SMA for the first time in more than two months. Again I would rather play strong names in the sector, but this is one to keep an eye on.

ChartSmarter Wednesday Game Plan 12/20/17

Markets took a prudent pause Tuesday as the major averages gave back some ground. The Dow fell fractionally after Mondays bearish shooting star at all time highs and the S&P 500 gave back .3%. The Nasdaq cooled off to the tune of .4%, not surprisingly after hitting the round 7000 number yesterday. Keep in mind though that is has protected its gap up, until recently a rare occurrence, in tidy fashion. Today it filled in one from 12/15, and on 12/6 it filled in one from 11/15 (the gap from 10/27 was never filled as the benchmark kept advancing northward). The Russell 2000 was the laggard Tuesday as the small cap index dropped .8%. It is within the daily range of the 12/4 bearish shooting star of its own from all time highs. No need to put your foot on the accelerator, but certainly hold tight to your positions in cruise control, as there have been no technical reasons to sell.

Looking at individual groups it was economically sensitive sectors that were strongest today as energy and transport plays acted best. Safer bets like the utilities and REITs were the laggards as the XLU recorded yet another 1.8% drop, until recently an oversized move for a defensive group. Technology did lag the the XLK lower by .6% with AAPL, MSFT, FB and GOOGL all losing ground Tuesday. Regarding AAPL it was a day after registering a solid double bottom breakout. We know the best breakouts tend to work out right away so lets keep a keen eye on that one the next few sessions. MSFT too did score a double bottom breakout from a 85.16 trigger and is holding close to it. GOOGL came into today higher 9 of the last 10 days after successfully retesting the very round 1000 figure on 12/5, which now looks to be smart support after being resistance hampered there in June, July and October.

One of the kings of retail has run into a roadblock at the very round par number. That round number theory is something isn't it? Especially at the 100 figure. WMT was rejected there today and on 11/7 as a long sideways digestion develops. It is digesting nicely the last 4 weeks after the 7 week winning streak from the weeks ending 10/6-11/17, although a flag here may be a bit long in the tooth. Below is an example of a bull flag breakout, which are must successful prone in a shorter duration (chart here is from the Monday 10/23 Game Plan). It is also a good example to buy strength as those that sold into the earnings gap up on 11/17 are surely kicking themselves now. Of course it has not undergone a Bitcoin like move, but this supertanker of a stock has gained ground steadily and paid a decent yield, AND offered nice appreciation. If venturing into this arena have an overweight within the discount plays, as they seem to be acting the best.

Past and Present Look at AA

The materials group is attempting to CLOSE above the round 60 number as the XLB as the ETF flirted with the figure on 11/30 and 12/4 and again on 12/18, and is why we rely on end of the session prices. A finish above could propel the fund to new heights. It is heavily weighted toward DWDP, but other names in the XLB are acting well near the round figures. SHW recently broke above a cup base trigger of 398.32 on 11/30 and has held the very round 400 number very nicely the last month testing it precisely a couple times. Below we take a look at AA and how we profiled the name just below in our 11/30 report and then take a current look.

This is how we looked at AA in our Thursday 11/30 Game Plan. It is now 9% higher from the suggested trigger.

Stocks that can be bought at the round numbers are AAAA is a materials play higher by 47% YTD and 30% over the last one year period. Earnings have been mixed with gains of .6 and 9.5% on 7/20 and 4/25 and losses of 2.5 and 2.6% on 10/19 and 1/25. The stock is lower 4 of the last 5 weeks and 18% off most recent 52 week highs, but the last 2 recorded bullish hammer candles at the round 40 number. Notice how the round numbers have come into play with a 15 of 18 week winning streak weeks ending between 6/23-10/20 traveling from the 30 to 50 figure. AA broke above a 39.88 cup base trigger that began the week ending 2/17 and taken out the week ending 8/25. It was successfully retested on 11/21 and enter just above the round 40 number at 41.