Markets recorded their first bearish candles in some time to begin the holiday shortened week. The Dow crossed above the round 26000 number briefly this morning before reversing hard, nearly 400 handles from top to bottom intraday. The S&P 500 did the same with its own round figure of 2800 before retreating. Perhaps most concerning was the action in the Russell 2000 which was stopped just short of the round 1600 number last Friday recording a bearish shooting star and was followed up Tuesday with a bearish engulfing candle losing 1.2%. The Nasdaq fell .5%, and it was classic bear market action opening firmly on highs and CLOSING wobbly upon their lows. We will need to see some follow through to todays move, but one would have been prudent to take some money off the table today. With todays negative candles in my experience they have been better in calling bottoms than tops. Time will tell but it would be irresponsible to at least not pay attention to them. Remember January is proving to be one heck of a volatile month as it has been in recent years.
Looking at individual sectors there were just a select few that managed to escape the big intraday reversals, and not surprisingly they hailed from the defensive groups. The healthcare, staples and utilities led Tuesday, with the XLP and XLV gaining .5% and .4% and the XLU lower by .2%. Many spoke of the questionable leadership regarding energy and today they looked correct. The XLE took the hardest hit with the ETF off by 1.3%. Certainly one day does not halt a trend, a very impressive one with a current 4 week winning streak, and it could be starting to create a handle on its long cup base under construction and now 13 months in duration. The materials were the second worst performers today with the XLB lower by 1.2% recording a bearish engulfing candle. It did register those same candles back on 12/1 and 12/14 and quickly brushed them off, but they happened right at their rising 50 day SMAs. This time it could return there once again to test the health off the trend. Problem is that it sits more than 5% above that important line currently.
Retail names have been becoming bifurcated and starting to separate the men from the boys. Keep in mind they were going up in the face of rising crude, not a common occurrence. A rising tide lifts all boats, and of course trends to overshoot on both the upside and downside and some names were inflated perhaps more than they should have been. Take the EXPR and LB examples with the names down 38 and 22% from their respective 52 week highs. Some names have remained resolute like BURL, PLCE, TIF, WMT, BBY and COST to mention a few. Some other names that were very soft as the space rallied hard are now attempting to recapture their former glory. Below is the chart of ULTA and how it appeared in our Friday 1/12 Game Plan. It recently broke above a bullish inverse head and shoulders formation that aligned with the round 230 number, and additionally it retested the move and held firm with some bullish candles there. This name bears watching, pun not intended, to see if it can reclaim its old best of breed status.