What goes up must come down, or at least that how the saying goes. The phrase in reverse was a good description of “turnaround” Tuesday. However it seems like many are acting like this is yet another possible rapid V shaped recovery, perhaps too many. And it may be, but as always ignore all the noise and focus on PRICE action. The Nasdaq recorded a bullish harami and CLOSED above its 50 day SMA in the process, although it recovered very little of the nearly 4% drop the prior 3 days. It bounced off the round 7600 number Monday and that could be a line in the sand for shorter term traders. The Nasdaq is looking at a potential 3 week losing streak, a feat that has not occurred in almost exactly one year.
The ongoing tug of war between the bulls and bears regarding the Russell 2000 was won by the bulls Tuesday as it was the best major index performer jumping 1.1%. Keep in mind both it and the Nasdaq were big losers last week slumping 2 and 1.1%, so they should be kept in the penalty box until PRICE proves otherwise. Toward the end of an aging bull the defensive Dow and individual names that fall into that category will outperform and be the last that investors tend to part with. And that is what precisely happened last week. It is still early to declare that, but something that should be monitored very closely heading into the fall.
Industrials scored a powerful session as the XLI rose more than 2%, doubling the losses from Mondays decline. The ETF is looking for its fifth consecutive weekly advance, and if it does so would be its first since last October. Like many other groups it is building the right side of a cup base that began this January at the round 80 number. It recorded just three CLOSES above 80 in 2018 (on 5/3 it registered a nice bounce off the 70 number), and the three weeks ending between all CLOSED taut within just .97 of each other. MMM, the second largest component in the fund is readying itself for an upside gap fill from the 4/23 session.
Financials and energy lagged Tuesday. The XLF fell .7% and was pushed back in the mid 28’s where it has encountered trouble since dropping below in late March. Today recorded a bearish engulfing candle following Mondays doji, and the last 4 days have now CLOSED in the lower half of the daily range. Sentiment seems to be high that this sector will benefit from a couple more interest rate hikes this year. The ETF trades 8% off most recent 52 week highs and I would prefer to witness some tighter trading on its chart, the opposite of what has been taking place.
Healthcare continues its ascent and most names obviously within the space will be dragged up with it. A vast majority of a stocks performance will be directly related to the sector with it trades. Now sure there will be winners and losers and some winners will handily outperform others. Some of the more mature names in the group are seen as value names, another reference to the growth vs value debate, and that could be a tailwind for some of these seasoned larger cap names. And to boot they will normally be accompanied by a juicy yield. The chart below of AZN, was how it was presented in our Thursday 7/19 Game Plan, sports a very nice dividend yield of 4.7%. It is looking for a 6 week winning streak and is approaching a huge cup base add on trigger of 41.44 that began the week ending 5/2/14.