They say its not how you start, but how you finish, and that applies to investing too. But the Nasdaq weakness of 1.4% today has to be concerning, after last weeks loss of 1.1% that CLOSED 200 handles off intraweek highs. Keep in mind there have been TWO doji WEKLY candles in the last 6 weeks (there was just 4 in all of 2017) and often one can be just a warning. Two so close in succession is a stronger worry. More important is the action in leading stocks and they have been flashing warning signs too. Sure we all know what TWTR and FB did last week, but other names being technically harassed include PYPL, ABMD and GOOS.
The S&P 500 registered just its fourth 3 day losing streak in the last 4 months, to demonstrate how strong the benchmark has been. The 2800 number continues to hold, but the Russell 2000 CLOSED beneath its 50 day SMA for back to back days for the first time since early April. The VIX which we mentioned numerous times had been recording multiple spinning top candles, which are indicative of a potential change in the prevailing trend, rose 9% Monday. We have seen brief spurts above in May and June and one has to be impressed with its staying power as it looks to break above the secular line once again. This week will see heavyweights like AAPL reporting after the close tomorrow have a profound effect where its short term direction will head to.
Energy continues to drill higher, pun intended, confounding most I would think. Is it a product of a strong 4.1% GDP number last Friday which indicates the economy is revving along? The XLE rose .9% Monday, easily the best performing major S&P sector and one gets the feeling the ETF has a strong move ahead with the current beachball being held underwater effect. The bearish descending triangle is quickly losing relevance as a cup base trigger of 79.52 will be the focus going forward.
On the other spectrum was technology as the XLK slumped 1.5%. The ETF is now a quick 5% off most recent all time highs and Monday undercut its 50 day SMA. It is now well below its prior cup base breakout trigger of 72.48 and is now testing a prior cup with handle breakout trigger of 70.52 taken out on 6/1. My personal belief is their is more weakness ahead in this group and their is better place to park your capital. One can always reenter if and when the spaces reestablishes itself. Until then there a better fish to fry and cash may be king.
The chorus of calls calling for value to outperform growth are becoming deafening. To be fair I guess I am in that camp as I reviewed my former reports and there seems to be an abundance of symbols with two or three letters (most Nasdaq names have 4 letters). The consensus could be concerning, but that is always seen in hindsight. Below is the chart of a classic value play GM and how it was presented in our Friday 7/27 Game Plan. Frankly I am a momentum player that likes to buy on strength, but you have to be able to adapt and GM has a few things going for it. Number one it filled in a downside gap last week which also recorded a bullish hammer candle on 7/25. This scenario offered good risk/reward and so far so good. Start your engines or value trap? As always know your out and be patient as long as the catalyst still exists.