Douglas Busch

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ChartSmarter Monday 3/26/18 Game Plan

Markets fell precipitously Friday with the Nasdaq, S&P 500 and Russell 2000 all slipping more than 2%. The old adage "they don't ring a bell at the top" comes in handy as markets have been showing signs of fragility for weeks now. The volatile action we have been witnessing is very indicative of topping behavior, the exact opposite of round, gradual smooth trade at bottoms. The Nasdaq dumped 6.5% this week, its largest weekly drop since the week ending 1/8/16 that fell 7.3%. Looking on its weekly chart one can see clear distribution since the beginning of February, so it is not like the market has not been telling you to take some money off the table. It CLOSED just below the very round 7000 number, an area that recorded a bull flag breakout in the first few days of 2018, and that seems so long ago and has no real relevance any longer. The S&P 500 CLOSED right at its 200 day SMA where a lot of stops will be just below and should accelerate some selling pressure and it now sits 2% above the 2/9 lows. On a YTD basis now the Nasdaq is UP 1.3%, the Russell 2000 down 1.7, S&P 500 by 3.2 and the Dow by 4.8%. The VIX had a huge week CLOSING above its rising 50 day SMA everyday this week, and today nearly climbed above its 26.32 double bottom trigger, although it did record a spinning top candle.

Looking at individual sectors Friday it was energy that was the "best" performer although it lost .6%. The staples and utilities were the second and third best actors as the XLP and XLU fell by 1.2 and 1.4%. Lagging badly today were technology and financials as the XLK and XLF dropped 2.7 and 3% respectively, and if you turned the leaderboard upside down it would have been very bullish. For the week it mirrored what happened Friday as tech and finnies were the worst behaved as the XLF and XLK slumped amazingly by 7.1 and 7.7%. For all the retest talk the XLF tested the lows this week with a low of 26.77, which was nearly identical to the week ending 2/9's 26.76 low. The ETF is now just above its rising 200 day SMA where it found a strong bounce early last September. Other notable moves were the 5.3% weekly decline for the materials as the XLB slipped underneath its 200 day SMA for the first time in 2 years.

I am a big fan of making a watch list to see what names are holding up well on the type of tape we are experiencing at the moment. But most importantly PRICE action must confirm on a CLOSING basis. Below is a great example of finishing above the pivot with the chart of CARS and how it appeared in our Monday 3/12 Game Plan. On Thursday when the market when the S&P 500 dropped 2.5% the stock was actually UP .3% on firm volume. That made it a very strong watch list candidate, NOT to purchase, but to see if it could CLOSE above the round 30 number, something it was unable to do once since falling below the figure on 1/24, even though it touched or traded above intraday TEN times after that date. Anyone who tried to front run the idea learned a very quick and valuable lesson as it cascaded lower by 6% in more than double average daily volume.

ChartSmarter Friday Game Plan 3/23/18

Markets were hit very hard Thursday, this time the excuse was China tariffs. But one who has been following the action knows the technicals have been anything but stellar recently. A retest of the February lows now looks likely and it is to be seen if they will hold. The bull trap on the Nasdaq above the double top round number of 7500 on 3/9 is now a distant memory. It recorded a bearish engulfing candle on 3/13 at all time highs and since then it has fallen 6 of the last 7 days and today pierced its 50 day SMA for the third time since 2/5. The 3/14-16 sessions tried to hold close to the 7500 number, but notice each day CLOSED near session lows. This week the tech rich index is off 4.2% and looks likely to complete a bearish evening star weekly pattern Friday unless something drastic happens Friday. The VIX that we have been pounding the table as it is worrisome if it held above 15 did just what is was supposed to and today bolted to the upside by well more than 30% and looks like it is sniffing out a double bottom trigger of 26.32. I do not recommend playing this instrument, but it is good to keep an eye on it for clues.

Looking at individual sectors the utilities must have felt very lonely as the XLU was the only major S&P sector to gain ground Thursday. It rose .5% and the second best performer by a long shot was the staples, although they fell by .8%. Everything else was soft with each sector off between 2-3.8%, strong selling indeed. It was energy that fell 2%, technology by 2.6% and financials were struck to the tune of 3.8%. On the XLF weekly chart one can see just how chaotic it is as it has fell 4 of the last 7 weeks. More importantly notice the wide and loose trade, a hallmark bearish characteristic. One can see the very taut trade dating back to the summer of '16 until hitting the very round 30 figure the week ending 1/26/18. Since then however the ETF is down 4 of the last 7 weeks, with big moves each week, mostly lower and this one is off 4.2% heading into Friday. Included in their is the week ending 2/9 which slumped 5.7% in the largest weekly volume since the week ending 11/11/16.

The financial space is a very diverse one, like technology, with different subsectors doing better than others. The payment transaction plays have been holding up well overall, as well as select credit card plays. Some spaces have been underperforming and below is the chart of WETF and how it appeared in our Tuesday 3/20 Game Plan. This particular name is lower by 32% off most recent 52 week highs, much more than some of its peers. One must consider that it has lagged other finnie names and that has to be taken into account when a stock can not keep pace. Additionally it has had problems with the very round 10 number recently with just one CLOSE above in the last month on 3/9 by 2 pennies. It is lower 7 of the last 9 weeks and this week by another 5.5% heading into Friday (6 of the last 7 weeks have declined more than 3%).

ChartSmarter Thursday Game Plan 3/22/18

Markets displayed some volatility Wednesday after the Fed announcement at 2pm, but at the end of the day the action was subdued. There was certainly movement in the late afternoon but the finishing prices were pedestrian. Except for the Russell 2000 which we have mentioned will be our guide along with the VIX. It produced a jump of .6% and looks like a handle on its current cup base is shaping up nicely. The Nasdaq lagged as AAPL, the 800lb gorilla in the tech space, fell by 2.1% and is now down 6 of the last 7 days. FB travails continue as it is lower by 9% this week so far and to consider the action of those two behemoths the Nasdaq being just 4% from recent all time highs is somewhat admirable. The S&P 500 reversed Wednesday after coming very close to its 50 day SMA and has spent more time below its 50 day SMA than above it since early February. The VIX recorded a bullish hammer today to CLOSE above its rising 50 day SMA, and the 15 number continues to be defended strongly recently. It is in no mans land here between 15-20 where it has roughly traded for the last 5 weeks. A break in either direction will likely give some foreshadowing for the markets near term.

Looking at individual groups it was energy that led for a second consecutive session with the XLE advancing 2.7%, again a lagging sector but perhaps trying to make a legitimate move higher. It was aided by data released today, and we would prefer to see big moves absent of news. That being said the price action suggests possible continued upside, as it is now breaking to the UPSIDE above a bearish head and shoulders formation and we know moves that break in the opposite direction of how they should, could be very powerful. Lagging were what one would expect to see in bull market behavior with the utilities and staples, both lower by .4 and 1.1% via the XLU and XLP. Rounding out the bottom four was technology unfortunately as the XLK dropped .5%, and it is now on its first 4 session losing streak since last December.

The staples woes do not seem to go away as the XLP hit a new fresh 52 week low today and the ETF now rests 12% off most highs. It is now on an 8 session losing streak, reminiscent of the 7 of 8 day slide between 1/29-2/8. Big names in the fund like PG is now 19% off its most recent 52 week highs. Many pundits in various roundtables at the beginning of 2018 pointed out to avoid staples and utilities and they are proving correct thus far. Below is the chart of another staple heavyweight GIS and how it appeared in our Thursday 3/8 Game Plan. The stock is has now lost more than a quarter of its value down 25% from most recent 52 week highs and has declined 9 of the last 12 weeks. For the technician it does not make much sense to hold this name even with a 4.3% dividend yield. Capital preservation trumps all.

Look at PRTY on Daily and Weekly Timeframe

Select retail names have been acting very well shrugging off overall market weakness. One should not ignore names displaying this type of action. TPR, the former COH, is a prime example with the stock on a current 6 week winning streak up by a combined 14% and this week adding another .8% so far. LULU, DECK and BURL are others to watch closely. Today we take a peek at PRTY on both a daily and weekly timeframe. Its complexion has become much better since last November, and looks nothing like its ugly start after emerging as a public company once again falling 29 of 39 weeks ending between 5/22/15-2/12/16. Below is how one can initiate and add to a position on strength.

PRTY is a retail play higher by 12% YTD and 13% over the last one year period. It has excellent earnings consistency with FIVE consecutive gains of 7.6, 19.4, 1.8, 3.8 and 2.1% on 3/9, 11/9, 8/2, 5/9 and 3/9/17. The stock has found nice support at the 200 day SMA this February and March, after being resistance last August, December and this January. Notice it bounced nicely off the very round 10 number last November. PRTY was above a cup base trigger of 16.23 intraday on both 3/9 and 3/12, but did not CLOSE above and both days left long upper tails. Enter with buy stop and CLOSE through 16.23.

ChartSmarter Wednesday Game Plan 3/21/18

Markets put in a quiet session as the dodgy Dow rose .5% as its symmetrical triangle continues to play out, was the best actor. The Nasdaq which came into contact with its rising 50 day SMA on Monday gained .3% and like the S&P 500 recorded a bullish harami candle. The Russell 2000 was essentially UNCH, dropping 5 of the last 6 days, and its failure to reach the overbought 70 RSI number as it has done every other month for the last 6 can be concerning. The VIX lost ground to the tune of almost 2%, but did remain above its 50 day SMA, and another pierce of that line which sits roughly at 17.40, so fast after recouping it could energize the bulls. We did mention the long bearish upper tail it registered Monday and it tended to see big drawdowns almost immediately afterwards. It is a bit worrisome when one looks at the charts of former leaders like an IP which is now 21% off most recent 52 week highs, and looking at a potential fourth weekly decline as this week is lower by 2.5% thus far. That did occur 3 other times in the last year with the weeks ending 3/24-4/14/17, 7/21-8/11/17 and 10/27-11/17/17, but the following week after the 4 week losing streak were all nicely positive as the week ending 4/21/17, 8/18/17 and 11/24/17 all advanced 6.3, 3.2 and 1.3% respectively.

Looking at the individual major S&P sectors Tuesday the leadership was a bit better if you are a bull. Energy was the best performer with the XLE higher by .8%, but the next 3 best actors came from the cyclicals, financials and industrials. Continuing to form it was the utilities, seemingly either at the top or bottom of the leaderboard, lagging as the XLU fell the most by .6% and the staples via the XLP lost .3%. The XLE is still making the case for a bottom in an ongoing potential cup base formation as it trades sideways along its 200 day SMA. The problem for many of these ETFs is that they are combating some real negative candlesticks. Take the XLY, which is holding up in a lukewarm fashion due to strength in select retail names, is making higher highs and lows but has to overcome not one but two bearish engulfing candles from the 2/27 and 3/13 sessions. And to add salt to the wound a doji candles was recorded on 3/12.

The transports always have a keen feeling of the genuine health of the economy. If goods are being shipped around these names will thrive and thats just what they will do. Some facets of the overall group will be stronger than others, but for the most part the sector is acting bullishly. If you want to look at the collective airlines, the JETS ETF is showing a nice cup with handle trigger of 34.22. FDX is doing battle with its 50 day SMA for the second time in as many months, yet that line is now falling. The IYT has been making higher highs and lows since the 2/9 session when it bounced firmly off its 200 day SMA. Below is the chart of CHRW and how it appeared in our Friday 3/16 Game Plan. It is a productive one and it has now broken through its 50 day SMA and I would not be surprised to see it magnetically pulled toward the very round par figure which was stiff resistance on 1/26. Round number theory creating roadblocks, pun intended.