Markets put in yet another choppy session and they should continue to do so as the VIX which has obviously come in substantially from touching the very round 50 number almost precisely on 2/6. Notice how it CLOSED at another round number, 30 on that day as well. But as it has come in hard, at the same time it remains elevated with the very round 20 number now posing issues temporarily. I would not be surprised to see a retest of the 15 level which could turn into support, after being resistance through much of last year. It would also correspond with a test of its rising 50 day SMA. The major benchmarks are acting in a bearish manner starting on highs and CLOSING near lows. For the fourth straight session the Nasdaq reversed near the round 7300 number, but to be balanced the bears have been unable, up to now, to make a serious dent in PRICE. The Russell 2000’s 50 day SMA is now flatlining, something it has not done since last September and that index is often seen as a good leading indicator. It is not in the penalty box yet, but as the referee of your portfolio it should lead to valuable clues in the short term.
Looking at individual groups Thursday one could question the leadership as the lagging energy group was the best actor with the XLE higher by 1.3%. It was higher intraday and as much as I do not care for lagging sectors it is still maintaining altitude, albeit very low, above the 200 day SMA and it did record a bullish harami candle today. The downside is that the ETF is forming a bear flag here and if the formation fails it could have a measured move to 56. Lagging today were technology and financials, sandwiched by the healthcare arena, just the opposite of what wants to see. The XLF was a clear under performer as it fell .6% and it is spooning the 50 day SMA, but it is becoming slippery. Technology via the XLK looks a bit better as it has some space between its 50 day SMA and another day or two hanging here would complete a bull flag. Like we mentioned earlier it is okay for leading groups to take a day or two off, today energy let it catch its breath, but one should look for confirmation in the uptrend sometime next week.
I have been talking incessantly about the need for scouring through names that have held up well during the recent correction. As you know by now they will be the ones that often sprint out of the gate first once and if the major averages find their footing. The cyber security space has been one with an abundance of good actors. PANW and IMPV has been winners in the space and below is the chart of FTNT and how we looked at the chart in our Wednesday 1/10 Game Plan. Like in real life in the markets good things come to those who wait and are patient. This stocks flag played out a bit longer that most, if you find the perfect chart run away from it, but once it finally broke above the 45.10 pivot in 1/18 it was a tug of war there between bulls and bears and the bulls came away with a hard fought win with multiple days finding support at an upward sloping 50 day SMA. Not surprisingly it has found some resistance this week at the very round 50 number, but a decisive move above 50.41 would be a huge positive as it would achieve all time highs in a long cup base pattern that began the week ending 8/14/15.