Markets were somewhat bifurcated Thursday with pretty tight trading. The Nasdaq was lower fractionally and its intraday range was less than 40 handles. It has gained 9 of 12 sessions thus far in ’18 and one of the down days on 1/10 recorded a bullish hammer. Heading into Friday it has gained .5% and looking for a third consecutive CLOSE at the top of the weekly range. The S&P 500 lost .2% and registered a spinning top candle, which could potentially indicate a tiring of the prevailing trend. For the week headed into Friday it is up .4%. The Dow is acting the best so far up .8% this week thus far. Subgroups that outperformed Thursday and still perhaps foreshadowing even more economic strength were the paper and transport names. An attractive name not mentioned frequently is UFS that is trying to free itself from the grips of the very round 50 number. It has been downgraded a couple times in recent months by RBC and Citigroup, but price is shrugging it off. Technically it could provide a bullish three week tight pattern tomorrow as the prior two weeks CLOSED within just .08 of each other.
Looking at individual groups it was technology that led for a second straight session, but the .2% gain in the XLK was much more muted that Wednesdays advance. Weakness overall was broad with the all of the other major S&P sectors finishing in the red. The utilities lagged proving once again that trends in motion are more likely to persist than change. The XLU fell .6% and the ETF is now 12% off most recent 52 week highs and the rotation out of the space has been breathtaking in both price and volume. Since the first of December ’17 it has gained ground just 11 times, and not one of the gainers has rose more than .9%, whereas 7 of the down days have declined 1% or more. It is trying its best to find a floor at the very round 50 number. The XLE lost .8% and we continue to monitor for any add on points. If it keeps trading sideways a bull flag could form, and a break above their could catapult it another 12 handles to the very round 90 number.
Any hopes of the Nasdaq leading again in 2018 will obviously depend heavily on the performance of the semiconductors. The group was somewhat soft recently, but has been making amends for itself and most likely gave the sector time to catch its breath. The SMH did advance through a cup with handle trigger Wednesday and showed some follow through today, a good sign as we know the best breakouts tend to work out right away. Even INTC seems to be digesting its blockbuster news from 1/3-4 sessions which lost more than a combined 5% (notice how it CLOSED well off session lows both of those aforementioned days). Below is the chart of XLNX and how it appeared in our Tuesday 1/16 Game Plan. It is now pushing above a bull flag trigger which also coincided with a cup base breakout, a “cluster of evidence” which tends to be more success prone. It has been the subject of takeover talks, but one should never invest based on that strategy alone.