Markets took a pause after a decent holiday shortened week on Monday with the major averages hovering around the UNCH line. The Dow, S&P 500, Nasdaq all finished up or down within just .2%, and the Russell 2000 falling .4%. The Russell 2000 has been trading very taut the last 3 days after the prior 4 rocketed higher following the 11/15 bullish hammer candle. The Dow Industrials are flirting with all time highs and on an RSI basis has clipped off nearly 40 handles, a good sign after hitting the very round 90 figure in October. The Nasdaq which rose 1.6% and everyday last week recorded a spinning top candle Monday, but lets keep in mind that candles have been much better at calling bottoms than tops. The S&P 500 managed to CLOSE above the round 2600 number for a second consecutive day and that is a bull flag breakout which carries a measured move to 2700. It did register a spinning top candle Monday and that could portend a stalling of the previous trend which is obviously upward, but lets give these markets the benefit of the doubt as trends are more likely to persist than reverse and seasonality factors are on the bulls side.
Looking at individual sectors it was the utilities that led with the XLU higher by .4% and the ETF is now on a 4 session winning streak but volume has been putrid, although of course we have witnessed a holiday where trade is subdued. It is looking for an unusual 9 week winning streak and now within the bearish shooting star weekly candle the week ending 11/10. Energy lagged with the XLE dropping 1% with the week ending 11/17’s drop of 3.2% looming large. Five of the nine major S&P sectors CLOSED up or down within .2%. The IBB lost .7% on Monday and it is trading near its 200 day SMA which it briefly undercut on 11/14 and that lasted just 2 sessions before it recaptured the long term line. The ETF has declined 5 of the last 7 weeks and heavy volume down sessions on 10/26 and 11/17 slipped 2.3 and 1.6% on double normal daily trade. This is just a prediction so take it with a grain of salt but it looks to me like the right clavicle of a bearish head and shoulders formation is building. The neckline is just above the round 300 figure but could trade to the round 330 number which was the top in the left shoulder into the near term.
One would have to been in some serious hibernation not to have noticed the strength in the homebuilders as witnessed in the ITB. The homebuilder ETF has advanced 52% YTD and is higher 12 of the last 13 weeks, and looking back even further has gained 32 of 46 weeks so far in 2017 and 7 of the down weeks fell less than 1%. The powerful narrative in the space has lifted other periphery plays like the recreational play WGO. The stock is higher 19 of the last 26 weeks, more than doubling since the week ending 6/2 and really demonstrates that consumers are paying for experiences. They may have become a bit more picky in the spending habits, however they will shell out cash for certain things. Below is the chart and exactly how it appeared in our Friday 9/22 Game Plan and it has acted very well POST breakout from the 39.40 on 9/14, with that round number resistance dating back 13 years. That is a major breakout and for those who missed, the trigger was NOT hit and reminds me of a favorite saying from a friend Jon Boorman, if you are looking to hold long term do not worry about a few cents here and there. It is like trying chasing a bar of soap around the bathtub. A logical entry would now be a pullback just above the very round 50 figure, which should provide somewhat of a smooth ride, pun intended.