Markets:
It certainly feels good to be back after a week off, and the markets seem to be enjoying themselves at the bears expense. I have seen a myriad of reasons as to why many pundits are trying to discredit, or even expensively trying to call a top in the indexes. It is just serving as fuel to the flames, and it is the Nasdaq that has once again entered the forefront. The tech rich benchmark is now making a habit of CLOSING in the upper half of the daily range the last couple weeks. Obviously a bullish sign, and this week it has added more than 2% already on top of the prior weeks jump of 1.7%. It has burst through the very round 8000 number, and do not discount the impact of the 3 weeks ending between 8/3/17, all of which CLOSED within just .27 of each other leading to this powerful advance. A great example of how tight, coiling trade should be respected.
The Russell 2000 is an important benchmark, as we know its small cap nature also gives traders if the feel is “risk on” or not. Just before my vacation I wrote that a couple of consecutive CLOSES above the very round 1700 number would be a positive signal and since taking it out last week it has been up, up and away. It continues to firm up, despite the lack of tariff discussion. That was the reason given as to its outperformance in relation to its peers, as the vast majority of revenues from stocks in this index are derived domestically, and therefore would be mostly unharmed by them. The VIX is trading in very tight intraday ranges, below both its 50 and 200 day SMAs. Again this type of taut trade leads to outsized moves, in either direction, although this downtrend could very well continue the current direction lower. A trend tends to persist more so, than it is to reverse.
Sectors:
Sector leadership was a nice recipe that the bulls relished in Wednesday. It has a “risk on” feel with cyclicals, technology and materials leading the way. Within the XLY of course is, retail and there have been some eye opening moves within the group. Some were laggards like an HIBB, now down 33% from most recent 52 week highs. It also illustrates the importance of CLOSING prices, as the day before the 8/24 plunge it traded above a 29.60 cup base trigger intraday, but was unable to finish above it. Others like FOSL were former leaders and this name is now 30% lower from just June highs. Even good looking recent breakouts falter, with both M and BKE showing good looking charts only to fall apart and are now roughly 15% off their most recent 52 week highs.
Lagging Wednesday were the staples, industrials and financials. The XLP, XLI and XLF were near the UNCH neighborhood to end the day. The staples and financials have had nice runs the last few months, and both the XLP and XLF would best be served by consolidating those gains before taking off higher from a continuation pattern. The XLP is forming a handle on a cup base that began in January, but the handle is not forming in the upper half of the formation, making it faulty prone. It has filled in the 8/15 gap now, but I just feel there are better fish to fry with a more of a growth feel to them. The XLF WEEKLY chart has a very nice look and one has to admire the length of time it is taking the build the right side of a long base. The round 30 number will be a battleground between bulls and bears.
Special Situations:
It would be hard to ignore the seemingly incessant healthcare strength chatter recently. The groups attention is well deserved as the XLV has risen 35 of the last 45 days since 6/28, and the ETF has eclipsed it January highs and is smartly above a 91.89 cup base trigger. Surely the space is diverse and one can drill down into the sectors, and the most talked about fund, the IBB. The IBB cleared a WEEKLY bullish ascending triangle trigger, through 120 which carries a measured move of 20 handles. Below is the chart of GWPH and how it appeared in our Friday 8/10 Game Plan. This area has come into focus with cannabis news as of late with STZ, and this is perhaps the best way to play the arena. It has lifted off its 200 day SMA the last few weeks and now look to add or initiate a position above a 152.60 double bottom trigger.