Sector Continuously Drilling Lower:
I am fond of the phrase, and mention it frequently, that trends in motion tend to stay that way, more likely than they are to reverse. It can be to the upside or downside. Below is a chart from Novel Investor, that demonstrates just that courtesy of the energy arena. Notice it is feast of famine with the sector as 4 of the last 5 years have been the worst or second worst behaved major S&P sector ( the lone exception was the best actor in 2016). This year proves no different, as YTD so far the XLE is being underperformed only by healthcare. And it is why rallies can be seen in this area, but they are most likely to be sold until proven otherwise. Another major adage is “don’t fight the Fed”, but perhaps it could be renamed do not fight the energy downtrend.
Solar Names In Outer Space:
There is no denying that the energy group is acting very poorly. For the last 6 weeks the selling has been near relentless, and against the the solar space they have really been reeling. Below is the illustration that confirms it in the ratio chart here. The TAN ETF chart carries a lot of weight at the 26-27 level, and it has the look of a long bullish inverse head and shoulders pattern that dates back to the beginning of 2018 there. As we have mentioned before sometimes ratio charts show extraordinary strength in one of the names, or sectors, because of some overwhelmingly poor action in the other. This is not the case as names like FSLR and SEDG defy overall market weakness.
It has been awhile since I wrote an energy piece because the group did not look to compelling on the long side. The last one published was on 4/13 and below is the chart of WLL and how it appeared in that note. It was a good example of being quick to dismiss trades that are not working. Here I was WRONG with WLL breaking above a bullish ascending triangle. The stop was small so the damage was contained, and now the chart is a teenager, although may be worth another look as it is near a double bottom made last December. As usual tight stop required.