Markets are making a bad habit of CLOSING upon their lows recently and case in point the Nasdaq has done so each day this week. We are not calling for a crazy correction, but looking back and Monday morning quarterbacking after a big decline shows that markets often give you the chance to exit. The Nasdaq with all the negative talk is still just 2% off most recent all time highs. Its 50 day SMA is still sloping higher very nicely and is now just 300 handles above and each day that gap narrows a bit. So if the benchmark could hang on somehow and let that important line catch up it could be a positive and limit the damage. However we know things very rarely happen the way they should and some best of breed names continue to get hit, many after earnings including RL which has declined everyday this week so far and is on pace for its worst weekly loss in 9 months. Other former best of breed names are being left behind, of course others talk their place, but the action in some could be a harbinger of things to come. The SMH has been acting a bit shady, most notably the 1/24-25 sessions which were down in heavy trade not long after a cup with handle breakout. AVGO is now 16% off most recent 52 week highs, and this week is off 4.7% and now firmly below its 200 day SMA which it has been above for the last 2 years. This is big follow through after last weeks loss of 5.9%. Looking at the major indexes the Nasdaq and S&P 500 are down 1.6 and 1.8% heading into Friday, and for the Nasdaq it would be the biggest loss since the week ending 6/30/17 and for the S&P 500 one would have to go back a little further to the week ending 11/4/16.
Looking at individual sectors Thursday there were 2 clear winners with the financials and energy each leading the way with gains of 1%. The XLE recorded its first back to back gains in nearly 3 weeks to show you how much the ETF has been drifting lower. I believe the weakness in the space is temporary, but it is still lower by 2.4% this week headed into Friday. If that holds up it would be the second largest weekly loss since last June. The XLF has been faring better as it is just 1% off most recent 52 week highs, compared with the XLE’s 4% drop, and it is clinging to the round 30 figure. It did record a doji candle this Wednesday, so a pullback in this space would not be surprising, even with the allure of rising interest rates. Lagging today were the materials and utilities, both lower in the 1.4% neighborhood. These sectors have been on a different trajectory with the XLB having advanced 3% YTD versus the XLU which has FALLEN 5% thus far in 2018. The XLU has a bit of an unorthodox bear flag pattern, if you ever see a perfect one avoid it, and a break below the very round 50 number that we have been discussing ad nauseam would produce a measured move to 44.
One thing that concerns us a bit is the lack of breakouts succeeding, and not only that a number of plays have been getting stopped out recently. When one begins to witness both of these situations which are happening more frequently than normal it should throw up some red flags and at least have investors raising some cash. You can always get back in and you may have to pay up to do so, but it is not the worst thing in the world. So lets take a look at a name that is working, and NOT selling off post earnings release, which many are doing even after putting up nice numbers. Below is the chart of ST and how it was profiled in our Friday 1/5 Game Plan. The European tech play, many are believing that is a better region to invest in at the moment, broke above a 50.92 cup base trigger on 12/12 which was retested and held firm just a couple weeks later. That is not uncommon and happens to be a good sign as the break is proven legitimate, and also gives the investors who missed the initial break to enter. On its weekly chart, not seen here, it has now broke above the add on 53.40 cup with handle pivot in a base nearly 3 years long and the stock is presently gravitating toward an additional entry through a cup base trigger of 59.14 which began the week ending 4/10/15. A break above that level would record an all time high.