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Technology Sector Overview: 10/1/18

Technology Overview:

  • The Nasdaq, like the the S&P 500 and Dow, ended the day near the UNCH mark Friday, unusual for an end of quarter session. The tech heavy benchmark rose .7% for the week, and for the last three has CLOSED at or in the upper half of the weekly range. It seems hesitant to decisively push above the round 8000 number. It now sports a cup base trigger of 8134 which could really accelerate the index, if a breakout were to occur. We will speak about the disappointing semiconductor arena later, but lets accentuate the positives. Software, via the PSJ, has jumped 37% YTD, and the IBB has gained 14% so far in 2018. Of course Monday kicks in October, and looking back over the last 5 years October has CLOSED the month higher from where it began 80% of the time, and November is a perfect 5 for 5 (November has been the new Santa Claus). Lets keep in mind the Nasdaq is going for a SEVENTH yearly gain in a row, and it looks very likely as it is up 16.6% YTD, well outperforming its next best benchmark competitor, the Russell 2000 which is higher by 10.5% so far. The latter is a bit concerning as former resistance at the round 1700 number between June-August, which became support this month, now looks tenuous again.

Examples:

  • There are certain patterns that I admire more than others. The round number theory I happen to be a big fan of, and below is another set up I look for too, the gap fill. OXY did it recently and is now higher 9 of the last 12 sessions. FLT filled in a gap this June and has responded well since, and in retail SCVL did it this week. Below is the chart of CARG, an online auto play, and how it was presented in our Friday 8/31 Game Plan. The name is almost exactly one year old, and has doubled since its first week coming public. The round number theory came into play with this name as the 40 figure was the scene in a cup base breakout trigger of 40.70 on 7/26 in a pattern 4 months long. It filled in a gap on 9/6 from the session precisely from the 8/7 session and has since risen nearly 20%. It is an excellent example of why new issues in strong sectors should be taken seriously.

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Technology Sector Overview 9/28/18

Technology Outlook:

  • Technology was somewhat vibrant Thursday as the Nasdaq rose .6%. Sectors critical to the spaces success include semiconductors, and the SMH remains range bound in a long symmetrical triangle that began in the month of March. A break to the upside could produce a 20 handle measured move, of course that is a big IF. These patterns are agnostic, meaning they can break either way. INTC has a big say in its direction, and bulls could feel invigorated that the stock is down 20% from most recent 52 week highs, yet the ETF trades just 8% off its 2018 highs. Thursday AAPL rose more than 2%, on an upgrade to bolster the tech arena. I prefer plain vanilla, generic moves higher on no news but lets see how technology reacts to a Friday quarter ending close tomorrow. Software needs to play its part and is higher by 2% this week heading into Friday, cutting in half the large 4% haircut it received last week with the ETF PSG. 

Examples:

  • I am old enough to remember the John Chambers era where the companies earnings reaction would have a profound effect on the markets, especially tech obviously. These days "old tech" have been holding up rather well, with not only CSCO behaving bullishly, but MSFT, HPQ and even ORCL acting well. Even CSCO's old rival JNPR looks relevant again, as it flags just below the round 30 number. Below is the chart of CSCO and how it was presented in our Friday 9/14 Game Plan. It is now higher 9 of the last 10 weeks with firm volume trends, and it has acted well POST breakout from a cup base trigger of 46.47 recently. It has CLOSED in the lower half of the daily range the last three sessions as it takes a well deserved, prudent pause. Keep an eye on a name that has been rumored to be a target of CSCO for years, never purchase a stock solely for that reason, NTGR as it rests upon its 200 day SMA. It is 20% off most recent 52 week highs and the last time it touched that line is screamed higher 9 of the next 11 weeks ending with a 20% climax the two weeks ending between 7/6-13.

Seasonality:

  • Technology will almost surely be the main focus of market participants risk tolerance. When the overall group is doing well, and investors 401K's are reflecting that, appetite for growth is heightened. The overall, group via the XLK, has been stout in 2018 as the ETF has risen more than 18%. The fund has advanced 6 of the last 8 weeks, and the last 2 have CLOSED very taut within just .33 of each other. If this week finishes in that range it will complete a three week tight pattern, an O' Neill favorite pattern. It sits just 1% off most recent all time highs, and good news still abounds. In the month of October, the last 4 years it has ended the month higher than where it started 3 of 4 occasions, and in November it is batting 1.000, gaining ground from where it began the month in each of the last 4 Novembers. 

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Consumer Sector OverView 9/27/18

Consumer overview:

  • The retail arena has come back strong, recovering well after not to ago under the threat of AMZN. Their have been some chinks in the armor as bifurcation surely exists. Look no further than former leaders that have been cut down to size, pun intended. Stocks like AEO ANF URBN CPRT or FND are now all well within or right at bear markets more than 20% off most recent 52 week highs (casual dining laggard DFRG is now 55% off its recent highs, not a typo). Their has been some M&A in the space as SONC is being swallowed by Arby's, and KORS buying Versace That type of activity should be construed as bullishly, and remember we just had a fantastic Consumer Confidence number, that came in at 18 years highs just above 138. Bears may ask if it is getting to frothy, as if you were to chart the index it is approaching a possible double top hit just over 144 made in May 2000, and we all know what happened during that time period. The bear growls may reach become deafening and omnipresent.

Examples:

  • The group that derives nearly all its revenues based on the home, have quite frankly been on the soft side. We all are aware of the weakness in the builders themselves, as the ITB trades in bear market mode 23% lower from most recent 52 week highs. And not surprisingly the periphery or furnishing plays have had a rough go of it. Peers RH and LZB are 18 and 19% off their respective highs, with the former looking better as it filled in a gap recently right at the round 120 number. Below is the chart of WSM and how it appeared in our Thursday 9/20 Game Plan. It still trades trades 11% off its most recent highs, but the chart successfully retested a double bottom trigger of 63.27 this week which nearly filled in a gap from the 8/22 session, and found support at a rising 50 day SMA. This Monday recorded a bullish hammer candle and today rose 2%, and tomorrow it will look for back to back gains for the first time in nearly 3 weeks. 

Seasonality:

  • Retail itself has been on the upswing, and the cyclicals are your best major S&P sector on a one year basis. They are up 33% over the time period, via the XLY, edging out technology by 2 percentage points. The cyclicals are a broad group, but dominated by the retail stocks. Bulls must admire the action as the staples component within consumer names begin to show signs of frailness, and their strength this summer was a concern. Below is the chart of how the XRT has performed, and over the last 5 years we see the October-November period being robust, with November the best acting month as the ETF CLOSED higher 4 of the last 5 years from where it began the month. Interestingly it did not join the December rally more than half the time. The XRT itself is acting very well as it just successfully retested a cup base trigger of 51.14 taken out on 8/14 and is now looking for its eight consecutive weekly CLOSE above the very round 50 number.

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Energy OverView 9/26/18

Energy Overview:

  • The energy space has done what markets tend to do, confound the most. Give credit where it is due as the ETF is higher 10 of the last 11 sessions, and the one day down on 9/21 fell TWO pennies. The chart has responded well with a bullish harami and hammer candles on off its rising 200 day SMA on 8/15 and 9/7. Tuesday however it did fail the break the series of lower highs dating back to 5/22. On the XLE WEEKLY chart (arithmetic) one can see it approaching the 78/79 area which has pushed the name back dating back to weeks ending 12/16/16, 1/26/18 and 5/18/18. The week ending 5/25 broke above the long ascending triangle trigger of 79 intraweek, but reversed hard slumping 4.5% in the fourth largest weekly volume of 2018. The price action should be respected however as it fails to break meaningfully lower, and could the fourth time be the charm to break above the 78/79 level, if it can get there, in a nearly two year long ascending triangle pattern? You get the feeling it has a beach ball underwater effect if it takes out the round 80 number, and crude just may hit some of those lofty, brave $100 targets in the process.

Examples:

  • It is always a good idea to examine how the generals in a sector are acting. They will often give you foreshadowing to when a group may be ready to stall or roll over. If the leaders are starting to show technical signs of weariness it could be a warning for the entire space. The chart below of FANG, is at a critical juncture, a fracking line in the sand if you will, pun intended. This name has not gone the way of a PXD, a former leader now 17% off most recent 52 week highs (FANG is 3% off its), but it is at a make or break moment here. The last 2 weeks it is up a combined 14%, and this week obviously early has tacked on nearly another 5%. The bulls and bears can paint there narrative here, and both have good arguments, and why it is a "nothing to do" stage presently in my opinion. Let PRICE confirmation be your guide. If it breaks above a bullish ascending triangle trigger of 138 it will carry a measured move to 166. If it fails here as price has memory, and it is in the vicinity of several bearish engulfing candles, and an upside gap fill, and dealing with a plethora of spinning top candles in mid July-early August, do not be surprised. I am leaning on the bearish side here as trade is very wide and loose, the opposite of bullish taut movements.

Relative Performance/Seasonality:

  • Energy was the best sector performer for the second day in a row now, and is now the best acting major S&P group on a one month basis, just climbing past healthcare. On a 3 month look back it is the sixth best gainer, and for 6 months it is fourth best. Not a lot to really take away from that observation, except for the fact it is showing very recent relative strength. However on the chart below we have a glimpse of how the XLE has operated the last 5 years, and as you can see October which is just around the corner is historically soft. It has CLOSED above where it opened the month just 25% of the time. November and December are better but still showing just a 50/50 likelihood of an advance.

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Looking Into Healthcare 9/25/18

Healthcare Overview:

  • For the last 6 months healthcare has been the place to be. Whether one has been invested in the IBB, XLV or IHI, all higher by 12, 14 and 30% YTD, your returns should have been strong. Looking at the formerly traditional "big three" with AMGN, BIIB and CELG, has seen some big bifurcation as AMGN sits at all time highs and CELG is more than 40% off its most recent 52 week highs. For certain not all names have benefitted, or perhaps they faltered because of lack of exposure to the area, as GE which earlier this year said it was divesting its healthcare unit, just as the group began its overall, nascent advance. The stock now sits 54% off its most recent 52 week highs and started the week off poorly down 3.5%. Bears may try to downplay the bullish move in the healthcare group as a whole, as defensive spaces like healthcare, and staples typically are the last to hold onto their strength before the overall market fades. Market participants sell their conservative holdings last, after they sell their technology holdings as they become even more risk averse.

Examples:

  • The IHI ETF has been a wonderful actor in 2018. It is higher 4 of the last 6 weeks, and 3 of the 4 weekly gains have been more than 2%. Names like MDT and ABT, the two largest components in the space, are both up better than 20% in 2018 so far. So much for lackluster performance in these supposedly boring names. Today a robust move was witnessed by a medical equipment play ABMD, as it surged 9% on the second best daily volume in the last 2 months. Sure there was concern following the weekly loss of almost 13% ending 7/27, that sliced its 50 day SMA for the first time decisively since January '13, but a spinning top candle on 7/31 followed by a bullish engulfing candle on 8/1, paved the way for a series of higher lows. The chart is looking healthy again, pun intended.

Relative Performance:

  • On the chart below it is easy to view just how well the healthcare group has come since the beginning of May compared to the S&P 500. Today the group demonstrated some decent relative strength as it was one of just four of the major S&P groups to advance, albeit softly. It is nice to see sectors act well on a somewhat poor tape, but healthcare is the best performing group, on a longer term and more important basis, now on a one, three AND six month time period. Over the last 6 months alone the XLV has gained nearly 20% (YTD it is the third best actor up more than 15%, behind the cyclicals and technology which have both risen more than 18%).

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