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Latest From The Blog
Healthcare Sector Overview: 12/19/18
JNJ Sneezes And Healthcare Catches A Cold: JNJ was one of the stalwarts in the healthcare arena, until shareholders were blindsided last Friday as the stock plummeted more than 10%. Of course it being the largest component in the XLV, some other names were most likely unfairly punished. But the sector has been performing wobbly ever since, and it recently stood atop the major S&P sector leaderboards. However on a one week basis it is at the bottom of the leaderboard rankings, edging out just energy to show you how quickly sentiment has changed within the space. Now I may be a bit bias but I think the technicals revealed some foreshadowing of the JNJ event as the XLV made that double top at 96, and went very quickly from all time highs to correction mode as the ETF is down 10% from its most recent 52 week highs. Of course the Obamacare ruling recently did not help the group at all as UNH, the ETF's third largest component, is now testing 200 day SMA support, a line that has provided comfort since early '16. Were Small Caps The Canary In The Coal Mine? Small caps are often considered a good leading indicator to market direction. They are more nimble and give a good sense before the mega cap supertankers shift in their ways. Below is the WEEKLY chart of the PSCH, the small cap healthcare ETF. It shows an alarming decline of nearly one quarter of its value from the late August highs. Its daily chart, not seen here, has the look of a bear flag breakdown from a 120 trigger on 12/13 which carries a measured move lower of 25 handles. The fund had set up nice as it formed a 3 week tight pattern at all time highs the weeks ending between 8/31-9/14, which all CLOSED within just 1.59 of each other. But it broke the OPPOSITE way that it traditionally does, and when that occurs the move can be powerful. In fact this week looks to be setting up, depending on Fridays CLOSE, for a bearish three black crows formation. Some names in the space have been holding up well including HZNP and AMPH, while others crater like ENDP now down 50% from highs made just 2 weeks ago, not a typo. Examples: When former best of breed names turn bearish the drops could be breathtaking. If it happens to occur in the healthcare sector they could be even more stunning. Below is the chart of NBIX and how it appeared in our Healthcare Report on 12/7. Sometimes obviously luck plays a role, but one should just go about the normal business of trading chart patterns responsibly, and if something extraordinary happens in your favor do not let it go to your head. NBIX was a former leader rising from round 40 number the week ending 4/4/17, that rose more than 30%, to nearly 130 the week ending 9/14/18. Since the week ending 11/9 it has recorded THREE weekly declines of at least 9% and it now sits 44% off most recent 52 week highs. The best charts on the way up or down offer add on points on PROFITABLE trades, not one under water and NBIX was no exception. It sliced a rounding top pattern well before the recent bear flag formation.
Technology Sector Overview: 12/18/18
Group Overview: Looking over the last one and three month time periods, there has been just one major S&P sector that is still trading in the green. That group would be the utilities. Technology, via the XLK, has dropped more than 14% over the last 3 months. The ETF is lower 9 of the last 11 weeks and now trades 17% off most recent 52 week highs. Trying to find green shoots in the space, makes finding needles in a haystack easy. However it does not mean an investor should completely ignore the markets, as when sentiment gets this ugly we could be getting closer to a bottom. Let me make it clear that I do not think that time is now, but looking for catalysts for the debacle the benchmarks have endured should never end. It could be a bullish candlestick formation for example, but many of those have been negated recently. Instead of constantly looking to call bottoms, investors should take the approach that they do not mind missing out of the first 5% higher, and can sit on the sidelines until a new trend firmly comes into place. Patience is a virtue and can help one avoid capital DEpreciation. Semiconductor Satisfaction Starting? Any investors who have become accustomed to ADDING to names on the way down, is feeling the pain in a big way. The market has been flashing warning sign for many weeks now, and astute traders were raising cash. This is not the only time one should be making a list during the holiday season, but prepared market participants can be rewarded handsomely if they are putting in their homework in these perilous times. Below is the ratio chart of the semiconductors compared to the S&P 500. Remember this group may have been a "canary in the coal mine" as the SMH was one of the first major technology subsectors to lead us down in mid March. Can they be the first to lead us higher, when the market turns around? Certainly that is a big IF, but the markets always attempt to confound the most and have a great track record of doing so. Start pouring through the space and look for names that are holding up the best. Examples: One must never fall in love with a stock. One can rent a name and attach itself for a profitable ride, but if a chart shows signs of breaking down an investor must separate his or her emotional attachment to it. Below is the chart of AMD and how it was profiled in our 12/10 Technology Report. To be fair lets give this stock full credit for rising 19 of 23 weeks ending between 4/13-9/14, but since its highs it now trades 45% off most recent 52 week highs. It has endured three double digit weekly losses since the first week of October and it filled in a gap from the 10/24 session on 12/3, resuming its downtrend. That also happened to be resistance at a downward sloping 50 day SMA, and the top line in a symmetrical triangle. One can now add to their short, or initiate a new position, below the pattern with a sell stop under 18, which would carry a measured move to the single digits. Remember trends once in place are more apt to stay that way than reverse, and this could be a good example.
Consumer Sector Overview: 12/17/18
Staples Intact: They saying goes in markets, as in life, it is not where you start but where you finish. Overall the benchmarks have began the last three weeks in fine fashion on Mondays. The S&P 500 rallied 1.5, 1.1 and .2% on 11/26, 12/3 and 12/10 (this past Monday recorded a bullish hammer candle off the round 2600 number). By the end of the week, the last 2 CLOSED dead on their lows. Hallmark bearish action as trade starts strong and ends wobbly, and the prevailing feeling among the majority of investors is very defensive in nature. The consumer staples on a three month look back period for example, are just one of three major S&P sectors that are positive (other two are utilities and real estate). Below is the ratio chart comparing the staples to the S&P 500 and one does not need to be a rocket scientist to see capital is being deployed to the space. Best in breed names include CHD, PG and CLX, which are all just a stones throw from all time highs. Suspect leadership, but reinforces the notion that there is usually always a bull market somewhere. Retail Reeling: In our 12/4 Consumer Report we examined the possibility of a breakdown in the relationship between the XRT and the S&P 500. The ratio chart below shows that potential did follow through to the downside, as a bearish head and shoulders pattern was carved out. From a pure performance standpoint the XRT is now in bear market mode 21% off its most recent 52 week highs, nearly doubling the softness seen in the S&P 500 as it trades 12% off its own highs. This week it added onto the week ending 12/7's 6.6% drop slumping another 3% (the XLY slipped up just 1% this week). There is some strong strength within the the XRT, as auto part plays AZO and ORLY are trading just 3 and 4% off most recent ALL time highs. They are the second and fourth largest components in the ETF, and the biggest name in the fund NTRI was the subject to M&A activity as it was bought by TVTY. The XRT was not affected as much by the strength in these aforementioned names as the weightings are very similar with no stock making up more than 1.75%. Contrast that with AMZN in the XLY making up 21.7%. Examples: Last week we highlighted that there was no real place to hide in retail, as is the case in almost every sector at the moment. Whether space was deemed defensive, case in point COST which undercut its 200 day SMA for the first time in 14 months following an ill received earnings report Friday, or BIG as a safe discount play which is now 56% off most recent 52 week highs, the selling has been indiscriminate. Below is an example of a luxury play and the chart of RH and precisely how it was presented in our Consumer Report from 12/11. A large body filled in black candlestick on 12/4 was foreshadowing into some potential weakness and it did demonstrate that this week falling more than 7.5% (to be fair it did advance 18% the previous week). A current look at the chart shows it is now 2 handles from successfully filling in a gap from the 12/3 session and it would be prudent to reduce ones short position.
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