Markets recorded a lukewarm session as the Russell 2000 showed some strength higher by .5% and the index has done everything a bull would want since the beginning of September. Since then it undercut its 50 day SMA very briefly and recaptured it in rapid fashion, a hallmark bullish trait. Mid November it bounced near the round 40 RSI number where leaders tend to find a floor and on the MACD looks to be breaking above a symmetrical triangle. The Nasdaq lagged as it recorded a shooting star candle rising fractionally and is feeling a bit of weight under the 7000 figure. It is being hampered by weakness in the semiconductor group, and speaking of round numbers the SMH is having issues climbing back above its 50 day SMA which aligns with the very round 100 number. It has been unable to make much headway since the week ending 12/1 lost 6%, its biggest loss in nearly 2 years (week ending 1/8/16 dropped 8.9%) that was accompanied by the largest weekly volume in last 5 years. I came away impressed with the fact markets shrugged off Bitcoin softness as it fell for a fifth consecutive session and today slipped nearly 7%. The S&P 500 rose .2% and is shying away somewhat from its own round 2700 figure.
Looking at individual sectors there were some very clear winners with energy yet again flexing its muscles. The XLE indeed did have a beachball effect above the round 70 number like we thought. The ETF is now higher by 4.5% this week heading into Friday, and if that gain holds will be its largest weekly gain since a 5.5% jump the week ending 4/22/16. Participants who fell they missed the boat may have an opportunity to enter next month, as January only CLOSES higher for the that month from the where it started the year just once in the last 5, before resuming strength in February-April. Honorable mention must go to the financials with the XLF advancing .8%, and one has to come away impressed with its action following the very robust weekly gain ending 12/1 that rose 5.2% in more than double average weekly volume. It now sports a bull flag formation with a buy trigger above 28.50 giving a measured move of 2 more handles higher. The XLU was once again was the worst acting group Thursday as it fell 1.2%.
As retail continues to gain steam with many claiming that tax reform will be a big beneficiary for them. I do not speculate on that type of stuff, PRICE action is all I need. The XRT is still humming along and grinding slowly higher after an 8% combined move the two weeks ending between 12/1-8, with BOTH coming in the best weekly volume in nearly 3 years. Now of course you will see laggards join the fray, and those are often a good opportunity to take advantage of a possible unjustified move. I have to say I would have said this recent powerful move by the overall group would have become somewhat suspect if perennial loser BBBY would have acted well after earnings. It did not disappoint me, rather shareholders with its third double digit loss after an earnings reaction falling 12.4% (9/20 and 6/23 dropped 15.9 and 12.1% respectively). Below is the chart of HBI, another weakling in the space, and how it appeared in our Tuesday 12/19 Game Plan. It recorded a bearish engulfing candle this Monday at 200 day SMA resistance and is now 5% lower from the suggested entry.