Markets once again shrugged off some early weakness, to go out near highs for the session, but still finished in the red. The Dow and S&P 500 recorded bullish hammers, and the Nasdaq was able to cut intraday losses more than in half. The Russell 2000 ended well off the days lows, but CLOSED underneath its 50 day SMA for the first time in two months and this could well be a simple bear trap. The Nasdaq looks decent as it could potentially register a three week tight pattern this week, at all time highs, with the last 2 weeks ending within just 14 handles of each other. The big 2.2% gap up on 10/27 is holding firm, with just one CLOSE underneath on 10/28, and that by just just 2 handles. Many say profitable trading should be boring, and that is just what is taking place here as the major indexes grind higher. Keep in mind since 1950 the S&P 500 has averaged a 2.2% advance in the month of November and gained ground 72% of the time, h/t @ariwald. It is essentially UNCH so far this month and looking to burst above its own three week tight pattern as the last 3 have all CLOSED within just 7 handles.
Looking at individual sectors there was some obvious bifurcation with the very conservative utilities and staples putting on a show. One has the right to question whether their emerging strength is investor repositioning into more defensive spaces, which is becoming increasingly more likely than the thesis I brought up not to long ago as them giving other groups a breather. The XLU and XLP advanced 1.2 and .3%. The XLU is now in overbought territory above the 70 RSI figure for the first time in nearly 6 months, and take it with a grain of salt as it could easily continue to power northward. The XLP on the other hand has been charging higher as well, and has recaptured its 200 day SMA, but I am a bit skeptical although I did see an article in Barron’s recently that highlighted limited exposure to the group. That alone could provide the fuel for growth into the ETF. On the flip side energy and materials saw weakness with both the XLE and XLB falling 1.7 and .9%.
Energy has captured plenty of headlines in recent months, and for good reason. It could be a barometer of global economic growth. As we like to say, we pay close attention to names that were former best of breed in their space, and we want to monitor how they behave once the group begins to receive some love. Below is the chart of PXD and how it appeared in our Thursday 11/9 Game Plan. This name was once a general in the space, but has since lost its way. Compare the distances between it and former peer stalwart EOG. PXD now trades 24% off its most recent 52 week high while EOG is just 6% from its own. We are simple technicians and will leave the why to others as PRICE is our only compass. PXD has encountered difficulty as it recently filled in a gap to the upside from the 8/1 session which aligned with a downward sloping 200 day SMA which created a “cluster of evidence”. Investors should be wary until this former giant can reclaim its 200 day. Until then keep it in the penalty box.