Prudent Pause:

The march higher for the industrials rages on. Nothing goes up in a straight line and one should expect some pullback in the near term. On the XLI there have been some dubious candlesticks this week, with a filled in black candle Monday, which last occurred on 12/3/18, that saw a quick drop of 16.8% to the 12/24 low. The very next session registered a doji candle, which is also adept at spotting a fatigue in the prevailing trend. After a 28.7% move top to bottom from the 12/26 low to this weeks highs, at least a pause is prudent here. A pullback should be a welcoming buying opportunity.

Rapid Descent?

The airlines were a decent performer last October, as seen in the ratio chart below comparing it to the S&P 500. Unfortunately a continuation of that momentum petered out fairly quickly. A bearish descending triangle has now formed on the chart, and weak relative performance with the S&P 500 seems likely. To be clear there is little liquidity in the ETF, and should be used just as an illustration. Former general in the space SAVE is acting very poorly this week down more than 6% thus far, AFTER last weeks drop of 2.5%. Talk about a possible hard landing.

Examples:

We at ChartSmarter are big believers of buying strength, as we know trends are more likely to persist than they are to reverse. But stocks also have a tendency to form bottoming patterns as they attempt to jumpstart a move higher. A good example good potentially be the chart below of AYI and how it appeared in our 2/8 Industrial Report. This former best of breed name is doing its best to recapture that prior status. Has a long way to go, but decent risk/reward exists here.

Be Sociable, Share!