Markets were under pressure from the start Thursday as the major averages never saw green and it was the Russell 2000 that was in the spotlight once again coming into contact with its 50 day SMA for a second straight day before rebounding. It fell .45% after touching near the 40 RSI level where the best performing instruments tend to bottom. In the beginning of October it was in the mid 80’s to give one an idea how it has quickly cooled off. To put that more in perspective the Nasdaq is still in the 60’s on its RSI and has been making higher lows since kissing the round 40 figure itself in early August. One can often get a nice gauge of the overall health of the market by how leading stocks are operating. It is a very small sample size but the moves in a couple today were startling. Names like CRL from the healthcare arena slumped more than 12%, although finding support near the very round par number and a double bottom breakout trigger of 102.20 taken out on 8/22. ALRM sank more than 14% and neared its 200 day SMA, which is still rising and a line it has not felt since February. Keep in mind bottoms tend to form in a long, gradual fashion and tops just the opposite. Lets see if the markets recent taut behavior begins to start becoming very volatile. It could be a worthy sign. That being said respect how the indexes CLOSED Thursday with the Nasdaq ending the session well off the lows off 1.5% at lunchtime.
Looking at individual sectors I almost sound like a broken record mentioning that energy led Thursday. The XLE rose just .3% but it was the best performer of the major S&P sectors. Could its nascent strength be an indicator of future economic growth as we used to look to this space for information on that subject. The ETF has real momentum as it is higher by 2% heading into Friday on the back of a 2% weekly advance last week (it also put up near 2% weekly gains three weeks in a row weeks ending between 9/15-29 demonstrating this could be the beginning of something real). Cyclicals were decent actors today as the XLY rose fractionally with some retailers ignoring a weak tape. Lagging today were technology, materials and industrials with all surrendering between .8-1.2%.
Energy names have been strong lately and as I have mentioned before it pays to understand which stocks were former leaders as these will normally be the best actors of of the gate once capital returns to the space. Some names will behave better as EOG is a general in the industry only 4% off 52 week highs. Some will take a bit longer and potentially be thought of as skeptical for that reason, but reversals will occur. Below is a possible example and the chart of RSPP and how it appeared in our Wednesday Game Plan this week. It is still 20% off most recent 52 week highs but burst above a bullish inverse head and shoulders pattern and its 200 day SMA which is a very good start. The stock repeatedly found support near the round 30 number this spring and summer and now it is premature, however heading into year end a weekly double bottom pattern is shaping up with a trigger of 42.09 to be added to. Once it gets in motion it could be powerful as witnessed last year with a run well more than doubling as it gained 30 of 47 weeks ending between 2/19/16-1/6/17.