Markets displayed some very suspicious action Thursday with the major averages finishing off session highs, for a second straight today. Perhaps this is the start of some tiring for the overall market. The bulls can correctly point out that PRICE has not been pushed lower by much, especially at these “lofty” levels and maybe if they benchmarks can trade sideways the major averages can play catch up and a meaningful drawdown can be avoided. With the first couple sentences just written somewhat negatively it must be pointed out that the indexes for the week headed into Friday are still showing respectable gains. The Dow is higher by 1.2%, and the S&P 500 and Nasdaq have advanced .1%. That being said some spaces of the market are exhibiting possible warnings signs. The transports have been ailing ever since the IYT’s bearish engulfing candle at all time highs on 1/16. Today it slipped below the round 200 number and registered its first 3 session losing streak since early last November. Not helping its cause is some recent earnings reports this week were UNP and AAL slipping in the 6% neighborhood after releasing numbers.
Looking at individual sectors a theme is starting to slowly develop and we will see if it has any legs. But there is a defensive nature to the recent leadership with the utilities trying to make a stance as the XLU was clearly the best performer Thursday advancing 1.6%. I still believe that the strength there will be short lived, but it could potentially be a clue that the market may be ready for at least a pause here. Healthcare was the second best actor as the XLV rose .9% and the ETF is looking for a fourth consecutive weekly gain, with the last 3 CLOSING at the top of their weekly range, a hallmark bullish characteristic. This week is up 1.4% heading into Friday and the prior 3 rose by nearly a combined 7%. Lagging today were the financials and energy arenas with the XLF and XLE off by .3 and .8%. The staples seem to be not getting the attention they deserve as the ETF is higher by .7% this week so far, showing good follow through following last weeks 2.4% gain which broke above a very tight weekly CLOSES. The Bollinger Bands on the XLP became squeezed earlier this month and that forecasted the breakout.
The energy sector has been red hot since last summer and it has continued into 2018 so far. Interestingly the XLE this week backed off after a potential double top as it hit an intraweek high this week of 78.39 in conjunction with the 78.45 the week ending 12/16/16. I feel the very soft weakness will be temporary and many domestic names have been acting well, but it would be foolish to ignore the strength in international names. EC from Colombia has been a favorite of ours after clearing the round 10 number, which was resistance for nearly 2 years, and has doubled in the last 3 months alone. Below is the chart of another name in the region YPF and how it appeared in our Wednesday 1/17 Game Plan. Of course both of the aforementioned countries now have business friendly climates after recent elections. It broke above a 25.54 cup base trigger on and is now flirting with its add on buy point through a 26.58 pivot in a 9 month pattern.