Markets finished off session highs Wednesday and it was the Nasdaq that put up a lukewarm ascent in the early going up almost .5% and turning that into a loss of .2%. It did recover from a .5% loss so buyers did step in, but unenthusiastically. The Russell 2000 was energetic to to begin today and was above a bull flag trigger which was unable to show much follow through at all as the day wore on. The bull flag is still flying, but these type of continuation patterns often want to break out in tidy fashion, and the longer they linger the more failure prone they become. The Dow did poke its head above its own flag, but ended up recording a doji candle which could indicate at least a pause in the uptrend is upon us. Its flag looks much better than the Russell 2000’s as it is shorter and tighter in duration. Earnings this evening and tomorrow morning for tech which could have an impact Thursday include FB TSLA QRVO SYMC and BABA.
Looking at individual groups it was energy and staples that showed vigor for a second straight session Wednesday. The XLE rose more than 1.1%, doubling its nearest major S&P sector competitor in the materials that advanced .5%. The XLE is now on a 5 session winning streak since recording a bullish harami candle at 200 day SMA support last Thursday. It bounced off the 45 number on the RSI recently where leaders will tend to bottom and is on the verge of a potential bullish MACD crossover. That just gives a little extra confidence as all indicators come secondary to PRICE. The ETF would welcome some volume as there has not been a week up or down in stronger than normal trade since June. Lagging on hump day were the utilities as the XLU fell by .6%. It is for the moment digesting a 4 week winning streak and this week has traded extremely taut so far with the first 3 sessions all moving within just .51.
We talk frequently about PRICE confirmation, as our investment decisions are made purely from that. Seeing names spurt above intraday only to CLOSE below them is often a harbinger of danger lurking around the corner. Other times people will try and front run the idea, as it is ingrained in many that we should buy things cheaply. If one likes a stock at a price of 60 and its at 59, why not try and capture that extra dollar before the breakout. Below is an example of that with the chart of LUV and how it was profiled in our Wednesday 10/18 Game Plan. A bull flag had formed just below the round 60 number and as potential cup base was taking shape. The trigger was never hit, therefore no entry should have ever been done. If one wanted to do Monday morning quarterbacking they could point to the long upper wicks on 10/4, 10/6, 10/17 and 10/23 as to why the issue climbing above 60. It does not matter, the price never did. Perhaps what is holding the airlines back at the moment is the emergence of crude strength? Maybe that normal relationship is coming back, who would have figured we would be using the word normal with anything regarding the markets anymore. Last week the stock lost almost 9%, giving back more than half of the prior 7 week winning streak, in the strongest weekly volume in all of ’17 so far.