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Industrial Sector Overview: 11/16/18

Industrial Seasonality:

  • On a YTD basis, the industrials are just one of four major S&P sectors that are still negative in 2018, with the others being the financials, energy and materials. On a one month look back period the are the second worst performing group. Contributing to that weakness over the last month were the aerospace, defense and transportation services. But combating the overall softness there was strength witnessed in airlines, heavy construction and waste services. In todays report we will focus in depth on names that remained steadfast through the recent ugliness, including BAH, FIX, IR, WM and MTZ. The stocks that were able to sidestep the weakness did so for a reason, and should be the ones with less battle scars and therefore have stamina to see their share prices appreciate rapidly. From a seasonality perspective notice that November has CLOSED the month higher than when it started the last 4 years. It began this month right at the round 70 number and remains just above. If history holds consistent, there should be a wind behind the XLI's back for the next couple weeks.

Rail Laggard Avoiding Technical Wreck?

  • The rails are often have a good pulse on the genuine health of the economy. Obviously they ship goods all around the country as their charts can give us a glimpse of the appetite of the consumer. Below is the chart of KSU and how it was profiled in our Industrial Report on 11/1. Before today it was in bear market mode, and the trade is still in play as the suggested stop was 97 and it never CLOSED underneath. Thursday it recorded a bullish engulfing candle, and it looks poised for yet another weekly CLOSE above the very round par number. The 100 figure has been influential as it was the area of a 10 month cup base breakout trigger taken out the week ending 6/16/17. This name is the laggard of the space, but could offer good risk/reward as it bounces off a key number and former breakout area. CP, CSX and NSC are all acting much better on a relative basis down between 5-8% from their most recent 52 week highs, as KSU trades 16% off its own highs.

Examples:

  • The machinery group within the industrial sector has acted very firm in the wake of a tough October and it is no coincidence that they are behaving bullish presently. We always like to say that the longer the base, not only the greater the space on the breakout, but it makes the trade more success prone. Below is the chart of DCI and how it appeared in our Industrial Report on 11/1. One can quickly see the decisive break above a 9 month cup base trigger. Adding to the bullish narrative was the stand the stock was making at the very round 50 figure, with back to back weekly hammer candles with both trading under 50 intraweek, but CLOSING nicely ahead of the round number. The stock is up another .7% this week, and as of todays finish looks like yet another potential hammer candle depending of course on Fridays session. It has lost ground just 2 days this month so far and another cup base is taking shape as it looks ready to climb through its rising 50 day SMA here. The possible trigger is 59.53.

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Financial Sector Overview: 11/15/18

Finnies Swimming Against Current:

  • The belief used to be if a rally was enduring without the participation of the financials it was not to be trusted. I am not sure that notion still exists, but the markets in general overall have been doing just fine without them. One could make that argument that they were compromised on net interest margins, with interest rates being held near zero for years. Whatever the reason, PRICE action confirmed their weakness. With all the negativity surrounding the space the XLF did record a bullish harami candle, the week ending 11/2 rising more than 4% in active volume. The candles have been informative as usual, in near term tops and bottoms as the high coincided with a bearish engulfing candle the week ending 2/2 (occurred at the round 30 figure), which was followed with a huge drop the very next week of almost 6%. To me their is still plenty of technical damage to undo, and the group should be underweighted, until a CLOSE above a current double bottom trigger of 29.17. More aggressive traders can enter here with a stop below the harami low of 25.

Outliers Abundant, Oxymoron?

  • There were some eye opening breaks from correlation within financial heavyweights from the S&P 500 this spring. Sure their inclusion in a group that includes just four of the eleven major S&P sectors to be down YTD, but the relative weakness was startling. Below are two of the prime examples in GS and BLK. GS is on pace to potentially register a double digit weekly loss, down 9% heading into Friday, which would be its first in more than 5 years. It is back to the very round 200 number, a level it last touched almost precisely 2 years ago and is now off 26% from most recent 52 week highs. BLK has been bruised even more down 32% from its own most recent 52 week highs. It registered a 5 week losing streak that lost nearly 20% the weeks ending between 9/28-10/26. It's hard to say if their frailty was a canary in the coal mine, but they were outliers. Remember trends tend to persist more than reverse, so the pain get still get worse before it gets better. Spend your mental capital on names that deserve it more. 

Examples:

  • The financials have been heavy since the selloff last February. It is a group that has made little headway into that early year softness, and the XLF now sits 13% off most recent 52 week highs, and that is AFTER a gain of more than 7% the last 2 weeks. There have been notable drawdowns in specific names in the sector, but look for potential bright spots among the rubble. Below is a possibility with the chart of CATM and how it was presented back in our Financial Report on 10/22. To be up front we were STOPPED out of this name for a small loss, but it has since snapped back following a THIRD straight double digit earnings related gain, with moves higher 22.3, 26 and 11.2% on 11/2, 8/3 and 5/4. I would only enter this name if it was to recover the 34.62 double bottom breakout trigger taken out on 11/7. Even as sickly as the market feels presently, and it can continue for a long time, it makes sense to keep a watchlist of names that withstood the 2018 negativity best. They will often be the first ones to shoot out of the gate when the markets catch a lasting bid.

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Former Retail Best of Breed Name About to Regain Status?

As we head into year end and Black Friday, shoppers will most likely be in a jolly mood. That should translate into rosy sales and boost the retail group. Consumer Confidence numbers remain elevated, but I just prefer to let the actual charts do the talking with their PRICE action. The beauty space remains a bifurcated one, as ULTA has advanced 40.5% YTD, but ELF and COTY are LOWER by 42 and 59% respectively in 2018. Tonight we will take a daily and weekly look at a former general in the space whose chart looks poised to move higher, and if a year end rally were to materialize this name can benefit substantially.

Here is a daily look at EL and it is higher by 14% YTD and 16% over the last one year period and sports a dividend yield of 1.2%. Earnings have been mixed, but now show back to back advances, with gains of 4.7, 3.4 and 9.2% on 10/31, 8/20 and 11/1/17 and losses of 8.3 and .1% on 5/2 and 2/2. It is now back above a "death cross" (not as potent a play as many believe) that occurred in late August. Enter the name with a buy stop above a bullish inverse head and shoulders trigger of 145. Use a stop below 137 to know when you are wrong.

The weekly look on EL shows the sideways trade since late June, could merely just be a resting point before taking off to the upside once again. A very positive trait was the doji weekly candle the week ending 10/26, which tends to signal an end in the prevailing direction. Additionally the 3 week period between weeks ending 10/12-26, all CLOSED very tight all within just .87 of each other. That type of coiling action often leads to explosive moves, and the next week rose better than 10%. One can add to this name with their stake initiated on the daily chart earlier in the post, with a double bottom trigger of 147.33.

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Technology Sector Review: 11/14/18

Nasdaq Look:

  • The Nasdaq finished UNCH, falling short on the abundance of "Turnaround Tuesday" calls. The tech heavy benchmark was up better than 1% early on, but is sold off into the close and has ended the day in the lower half of its intraday range 4 sessions in a row. A brief interlude above its 200 day SMA last Wednesday proved futile, and that was the THIRD time beginning with 10/10 that it has undercut the line. The secular moving average is now bending lower, and as the old adage goes nothing good happens below the 200 day. Its bend reminds me of watching the pole vault in track and field competition, when an athlete brushes the bar at a lofty height and it shakes back and forth, and for a split second it looks like it may come to rest, before falling heavily to the ground. Will PRICE on the index do they same? Predictions are worthless, but the longer it trades underneath the 200 day the worse off it will be. Lets remember the line was never breached during the February and March selloffs. I personally believe we are still hearing to many bottom calls, and once they cease, which could be a long time, then perhaps a floor will begin to develop.

Software Still Shrugging off Semiconductors:

  • The turf war between the two dominant groups within technology continues to be won by software. The chart below is a ratio chart comparing software to the semiconductors. The PSJ trades 15% off its most recent 52 week highs, not much better than the SMH now off by 19% from its own highs. However the 200 day SMA on the PSJ is still sloping higher, something the SMH can not boast of. Their has been M&A activity in both groups, with APTI being swallowed by a private equity group this week at a hefty premium. Truth be told prior to the announcement yesterday it was on an 8 week losing streak that cut the name in half. RHT in the space of course was taken out by IBM, and TWLO grabbed SEND after trading publicly for less than one year. Semiconductors still lack the strong leaders, with the possible exception of XLNX which refuses to retreat. The highway in this group is ridden with potholes as former darlings such as AVGO, QCOM, NVDA and AMD are all lower by 21, 29, 32 and 43% from their most respective highs.

Examples:

  • One has to look back on the month of October and scour through names that demonstrated excellent relative strength. The chart below, of ERIC and how it was presented in our 10/8 Technology Report, serves as a great illustration. It basically ended the month where it started, a solid performance by any means. On 10/18 it recorded its third straight impressive earnings report higher by 5.3%, with the prior two advancing by 8.2, 17.2% on 7/18 and 4/20 (both of those went on to fill their gaps). The stock seems to have made the successful transition from a hardware to software play, which BB attempted to do as well but is off 38% from most recent 52 week highs compared to ERIC being just 5% down from its. The stock has been on an upward trajectory for just more than 2 years now and this name is being pulled to the very round 10 figure in the near term in my opinion.

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Consumer Sector Overview: 11/13/18

Wobbly Weightings:

  • Live by the sword and die by the sword. The XLY was hit to the tune of 1.95% Monday, and one is witnessing what occurs when their is a hefty weighting at the top of an ETF. The XLY has benefitted generously as AMZN makes up more than 20% of the fund, and Monday it entered into bear market territory down 20% from most recent all time highs. It ran into trouble with a double top near the very round 2000 figure in September and October (a bearish engulfing candle on 9/5 and a doji on 9/28 were fair warning). Today it undercut its 200 day SMA for the second time, previously did so on 10/26, and prior to that it was a line that was not breached in years. A negative trend change on the weekly chart below could be underway, as the bullish RSI zone threshold of 50 was resistance last week, which was comforting dating back to 2016. Former support becoming resistance is not a bullish development. 

Leaderboard Laggards:

  • As like many groups the consumer discretionary names are very diverse. Homebuilding stocks are within the space, and as bad as they have been perhaps a small glimmer of hope is the rebuilding efforts that will take place following the ongoing tragedy in California. Amazingly the ITB is 34% off its most recent 52 week highs and has lost ground 28 of the last 42 weeks, but its chart seems to be making a stand at the round 30 number, but I would not put capital into the group here. Furthermore I thought it was a bit frothy to see names like REV, more than doubling since the week ending 8/10, actually RISING fractionally Monday. I am purely a technical analyst but I believe the stock has undergone TWO reverse stock splits. Another name that took me aback today was KODK, up very strongly after an asset sale was announced. Of course this means little, but the message it speaks when names like these are on the leaderboard add to the ongoing negative narrative.

Examples:

  • The footwear group does continue to hold up well for the most part. We know NKE has been in the news recently with its ad campaign and the stock is now 13% off most recent highs but did fill in a gap on 10/23 from the 6/28 session. Its European competitor ADDYY also filled in a gap on 10/11 from 8/8. DECK, often a holiday favorite, sits just 3% off its most recent all time highs and is extended from a breakout above a double bottom trigger of 119.72 taken out on 10/29. Below is the chart of SCVL and how it appeared in our Consumer Report from 11/1. Today it attempted to make a push toward its cup base trigger of 45.10, but reversed with the fragile tape. Still give it credit for hanging in there and during October it fractionally moved below its 50 day SMA, when the vast majority of stocks were having trouble holding onto to their 200 day SMAs. If markets can regain their footing, pun intended, this name should be just fine.

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