Markets put in a productive session continuing to digest the big run up and although they are overbought on an RSI basis, that does not mean they can not go higher as my friend Jonathan Krinsky of MKM eloquently wrote in his weekend note. “One indicator that has been talked about lately is weekly RSI, which has now exceeded 80 for the first time since 1995. Since 1928, there have been twelve other instances when the SPX’s weekly RSI has been above 80. While forward returns following such occurrences have far exceeded those for the average week looking out 2-12 months, it’s perhaps even more remarkable that in every instance the SPX was higher at some point either three, six or twelve months later. The message appears to be that any near-term weakness is likely a buying opportunity”. The Russell 2000 was the winner today as it rose .22%, and it makes sense as capital will be repatriated back home in the tax reform package.
Looking at individual sectors it was energy the once again led the way and with the CLOSE above the round 70 number Wednesday, a figure that had become a nuisance lately, the long cup base trigger of 78.55 for the XLE now looks more likely to be touched sometime in the first half of ’18. The ETF is higher by 2.4% heading into Thursday for the week, and a weekly finish above 70 would be very bullish as the last three were all above intraweek, but failed to end north of the round number (the last weekly CLOSE was 4/7). Lagging today were your traditionally defensive groups like healthcare, staples and utilities. The XLU is now less than 1% above its rising 200 day SMA and needs to hold that important line to maintain its series of higher highs and lows. It is being held hostage by rising yields, with the ten year right at 2.5% and looks poised to be magnetically pulled toward 2.6%, a level hit late last year and early this one. This will help financials and suggests economic growth is gaining steam.
With all the talk about GE as of late and I field many questions inquiring if it is a buy, which tells me it is probably still going lower. A name associated with the name in the energy space, the spinoff BHGE, is beginning to act a little better. Do not get me wrong it is still 29% off most recent 52 week highs, but its complexion is clearing up a bit. Below is the chart and how it appeared in our Tuesday 11/28 Game Plan. We had it listed as a short candidate but it has held the round 30 number very well with no weekly CLOSES below the figure since touching it in late October. The bull flag actually ended up breaking to the UPSIDE, and when names do the opposite of what is expected to happen, the move can be powerful as many are caught off guard. The stock is up more than 8% this week headed into Thursday and recaptured its 50 day SMA for the first time in more than two months. Again I would rather play strong names in the sector, but this is one to keep an eye on.