Markets lost ground Thursday, as it was the first loss this week for the Nasdaq, S&P 500 and Russell 2000 (the Dow fell Wednesday). I have been keying in on the strength of the Russell 2000 and Wednesday recorded a bearish shooting star and today just missed a bearish engulfing candle. Looking back it has made its third lower high with other negative bearish engulfing candles on 1/24 and 3/13. It is still well above its 50 day SMA, and the Dow and S&P 500 traded below that line intraday only to CLOSE above it a good start. The Nasdaq did record a doji candle Wednesday after a 500 handle run and it kissed its 50 day SMA today too. For the week thus far all the major indexes are still comfortably higher by more than 1%. A space that has not been on many radars which is acting poorly are the homebuilders. The fact that the ITB is now lower by 16% off most recent 52 week highs and not garnering much attention is surprising. It was below its 200 day SMA intraday but did manage to CLOSE just above, although when a best of breed name in the group like an LGIH is down 10% from its most recent 52 week highs it should be waving a caution flag.
Looking at individual groups it was the financials that broadly outperformed as the XLF was higher by 1.5%. The ETF and many of its components are currently sporting bearish head and shoulders patterns. The XLF itself has a rather unorthodox pattern, but if it could climb above its 50 day SMA which has been sloping lower for a month now it would be a step in the right direction. Energy was the only other major S&P sector to gain and perhaps investors are becoming to accustomed to that, and the group may be ready for a little pause. The XLE is down just 4 times in the month of April (two were down by just .1%) and is higher 3.1% this week heading into Friday after last weeks stellar gain of 6%. Sticking out in an ugly way Thursday were the staples that were by far the worst actor as the XLP slumped nearly 3%. It is down 7 of the last 11 weeks and another 2.4% so far this week as it hangs heavy down 13% from most recent 52 week highs. The last 3 weeks have all CLOSED very tight, all within just of .21 each other and that type of action can lead to explosive moves, in this case lower.
I am a big believer in momentum and tend to sprout idea generation by names showing excellent relative strength. But occasionally we find charts that are well off their highs, the chart here is currently 15% off its, and they show bottoming patterns that catch our eye. Here is how ALRM was presented in our Tuesday 4/17 Game Plan. It is a former best of breed name trying to recapture its former mojo. Things that stood out were number one pressing on its upward sloping 200 day SMA for the fourth time since last December and being shut down there. However I am one that believes the more the line is touched the more likely it is to break. Secondly it showed a bullish inverse head and shoulders pattern giving us a “cluster of evidence”. Thirdly on the weekly chart it was CLOSING in the upper half of the range frequently. Additionally on a weekly basis is was being continuously thwarted at the round 40 number. It traded above 40 intraweek the weeks ending 12/22/17, 1/19 and 3/16-23 but could not CLOSE above, and if it should do so Friday would be very constructive. Not surprisingly it is building a cup base that was rejected near the round 50 number the week ending 10/27/17.