Chartsmarter Insights

Material Information:   We like to mention very frequently that the best breakouts not only tend to work right away but act well POST the move. If that is the case one has to be skeptical about the long MONTHLY cup base that occurred in March as it was followed by that dubious dark cloud cover candle in April. April witnessed some large bifurcation as you can see here with steel plummeting more than 15%, yet Gold behaved itself jumping almost 10% (chemicals and packaging were also lower and these groups are economically sensitive, so not the best overall sign). NUE fell victim to round number theory at the 200 figure in April with a bearish engulfing candle and finding some resistance at the top of a bearish rising wedge pattern dating back to the start of 2022. CLF which has other things going on besides just watching the technicals was unable to record back-to-back up days for the whole month of April. Markets could care less about what I think but the past of least resistance to me would be a pullback to retest the recent cup base breakout near 86. Then a potential double bottom base could play out with a run toward the very round par number into year-end.

Clarity Tonight: Another of the mega caps REPORTS earnings after the bell and this will have a big effect on the XLY. AMZN is the largest holding in the XLY at almost one-quarter of the fund, will release numbers, and on the MONTHLY chart below look at how this chart is setting up. Of course, Tuesday ended April and the MONTHLY candlestick was a spinning top which often indicates fatigue, but the reaction on Wednesday will tell the real story. This could be on the verge of a massive cup-base breakout with a measured move of 100 handles. This will take time if it even happens at all, but this could be a good start for the XLY as we mentioned yesterday on the backs of a possible TSLA turnaround. At some point, we will need help from the other 60% of the XLY (AMZN and TSLA make up nearly 40%) and this may not come from the third largest component in HD which is now bear flagging along the 200-day SMA. One feather in the bear's cap on the XLY MONTHLY chart is the March doji candle.

Technology Crossroads:   When we look at some of the biggest major S&P sector ETFs in the XLK and XLY, both have done not too much on a YTD basis. And interestingly both, which are very top-heavy, have had one of the top two components holding it back. The XLK, which is essentially UNCH YTD, was held hostage by TSLA (that names feel like it is bottoming) as AMZN forged ahead, and the chart below of the XLK has been hampered by AAPL, as MSFT did most of the heavy lifting. Now we know Apple REPORTS Thursday after the close and it has made some big countertrend moves and this will obviously, have a big influence on the XLK. Its WEEKLY chart has recorded two rare gravestone doji candles near the very round 200 number, the second being the middle candle in an evening star pattern (it recorded one also in the summer of 2022 and each one a very good signal of weakness ahead). A 10% haircut after earnings would be roughly a visit to the 200 WEEK SMA where it has touched in some time. The XLK chart below looks like it may at least stall here at the 21-day EMA before the well-anticipated number on 5/2.

Healthcare Ailing: It has been a sloppy start to the year for the overall healthcare group via the XLV. One can see here it has added "just" 3% YTD, making it the ninth best of the 11 major S&P sectors. Weighing on the group is biotech with the XBI down more than 6% in 2024 thus far (looking at biotech seasonality for the last 5 years, notice the first four months between January-April have all shown an average MONTHLY loss). The daily chart below of the XLV is sporting a break ABOVE bear flag which can be powerful to the upside as we know from FALSE moves come fast ones in the opposite direction but this one lost its momentum as the week wore on (one can make the argument for a bearish head and shoulders and notice the negative RSI divergence). The fragility of the ETF is not surprising if one were to take a look at the top holdings. LLY was a round number theory victim at 800 two months ago and now sports a bearish rounded top, and a move below 720 carries a measured move to 640. UNH, just 2 weeks ago recorded its first double-digit WEEKLY gain since the week ending 11/6/20, and on 4/16 completed a bullish island reversal but still feels like a lot of overhead supply above (remember also has a big impact on the PRICE weighted Dow being the highest priced member). The number 3 holding in JNJ looks like a break under the late October lows is likely.