Markets began the week in somewhat bifurcating fashion as the Nasdaq stubbornly refused to give back any of the huge gains last Friday, finishing essentially UNCH. It was the Russell 2000 that suffered the biggest hit losing 1.1%, and doing serious damage to the bull flag formation. It could now see a retest of the former cup base trigger at the rough 1450 level which is about 3% away from at the moment. That would also serve as an benign entry at an initial test of a rising 50 day SMA after a recent breakout. Interestingly the “boring” Dow is now sporting a bull flag of its own which is looking much better than the Russell’s, and the flag pole is 1100 handles long which would make for a serious year end measured move if taken out. Keep in mind seasonality is a bright spot as Ari Wald mentioned in his weekend note since 1950 the S&P 500 has averaged a gain in November of 2.2% and rose 72% of the time in November. December is even better rising 78% of the time averaging a slightly less advance of 1.8%.
Looking into individual sectors energy clearly was the winner as the XLE rose by .5%, well ahead of its second best performer in the technology via the XLK rose by .2%, and the utilities were up by one penny. These three aforementioned groups were the only of the nine S&P major sectors to advance. Lagging were the industrials, staples and healthcare spaces with the XLV losing more than 1%. Last week the XLV recorded its first drop of more than 2% falling 2.1% and it was its largest weekly drop in exactly one year dating back to the week ending 10/28/15. Last week also registered a bearish engulfing weekly candle and Monday extended its losing streak to 6 sessions and undercut its 50 day SMA in the process. It now sits 4% off most recent all time highs. The staples are now off more than double that as the XLP is 8% off its most recent 52 week highs and it is rapidly approaching the very round 50 number which was support all throughout last November and will be critical to hold as that level was resistance the first 10 months of 2015 and longs in the space will not like to see that number crack and act as a headwind once again.
The semiconductor group has been a staple in the diet of this ongoing rally and it would be foolhardy to try and bet against it. There have been laggard names within the group, but trying to short them would be akin to portfolio suicide. Any other group is still worthy of playing pairs. But sticking to the semis, look at perennial dawdler CREE which has put up two big volume double digit weekly gains in the last 5 weeks as evidence of the point I am attempting to get across. Below is another name that was not keeping pace with the overall group. Her is the chart and how it appeared in our Monday 10/23 Game Plan which we highlighted as a potential short below a symmetrical triangle. The trigger was never hit, and is a good example of being patient for PRICE confirmation as it has advanced by almost 7% the last 2 sessions and has now broke to the UPSIDE of the triangle (symmetrical triangles can break in either direction). It REPORTS earnings this week and a move above the round 80 number would be a first in 15 months and can be interpreted as a cup base breakout above a 79.44 trigger which began the first week of June.