Douglas Busch

Not "Toast"?  Opportunities arise when names that have REPORTED solid earnings are taken down by peers who did the opposite. Even they set up technically offering a good risk/reward scenario even better. Today's 5% drop for TOST could turn out to be a good example on the back of software play PANW pummeling lower (TOST is not a security play but the jolt in Palo Alto rocked the sector). Toast may be benefitting from the strong casual dining sector with the likes of WING more than doubling from last September's lows even with the 4% haircut today (notice the bounce off the very round 300 number Wednesday). Or SHAK also dealing with round number theory with the reversal off par on 2/16 and the doji Tuesday? Below is the daily chart of TOST and there are a few things to admire. It is retesting a bullish inverse head and shoulders breakout and filling in a recent gap. On top of that it is hovering just above the very round 20 number and has previously filled in another gap that completed a bullish island reversal from the 12/13 session (after the gap down from 11/8/23). If one is going to play this use a CLOSING stop below 19.

What We Have All Been Waiting For: There seems to be a stalemate here for technology and with Wednesday's reaction to NVDA's earnings I think will have a meaningful push in either direction. We could be on the cusp of a 2 year double top on the Nasdaq, or we could be ready for another sprint higher here, after most of February has attempted to digest the big late run from 2023. The WEEKLY chart below of NVDA, and to be clear I will not be playing the name into earnings, registered a doji candle last week which is adept at signaling changes in the prevailing direction. Now this could drop 10% tomorrow and still have its bull flag breakout intact toward the very round 900 area. Is this PRICED to perfection? Of course, no one knows and SMCI many were saying the same thing every 100 handles I bet. Give bulls credit Tuesday for making a stans at the rising 21-day SMA, but bears would point to the MACD crossover. Again no need to be a hero. Let the dust settle as the move is sure to be energetic and then one can make a better informed decision. 

Material Strength:   Are the materials ready for a comeback? Looking at the components to get a feel for what is contributing to the strength I was surprised to see that the top holding was LIN at nearly 22%, a bit top-heavy. The stock's back-to-back 3% WEEKLY gains are certainly helping. SHW is the 2nd largest name in the fund and it is acting well too as its WEEKLY chart is sporting a bull flag that formed at the bottom of a cup with handle pattern (a break above 315 carries a measured move to the very round 400 number). Rounding out the top three is ECL which is digesting the big earnings gap up on Tuesday (its fifth straight positive earnings reaction). Below is the daily chart of the XLB and last week completed a 4-week winning streak, its first since October-November 2022, rising 2.4%. On its WEEKLY chart, one can see it has underperformed the S&P 500 since the start of 2023, but that could all change with a break above the long cup with handle pivot of 86.40. And this is all with very little help from gold, which if that could turn around could be a tailwind. Truth be told there is little gold influence with NEM the ninth largest name in the XLB at less than 4%, and FCX has some exposure to the precious metal.

Recessionary Thoughts:   As news crossed the wire of Japan entering recession with two consecutive quarters of negative GDP growth, I thought it would be good to take a look at a couple of names that may warn us about that domestically. Below is the daily chart of FDX and it is at a critical juncture here as it tests a pattern from the late October lows. Just the fact that it has ventured this far back while many other overall names have not receded to these depths suggests caution. It is now 17% off most recent 52-week highs and since the crater week ending 12/22/23 that fell 12%, it has not advanced in back-to-back weeks. The fact that it occurred not long after a WEEKLY double bottom breakout pivot of 269.29 is even more worrisome as we know the best breakouts tend to work right away and act well POST the move. The chart of UPS, which is weaker, is now 26% off its annual peak, and its 200-day SMA is still sloping lower, the opposite of FDX. It has produced FOUR straight negative earnings reactions and has recorded a couple of big weeks of distribution following those reports down 11.3 and 11% in the weeks ending 10/27 and 2/2, and notice the bearish death cross as the 50 WEEK SMA crosses below the 200 WEEK SMA. Both these charts are speaking loudly about a possible recession here.