Technology Stamina Noteworthy:
Given that I am headed up to Saratoga this weekend for a wedding, a horse racing analogy is in order. Technology just retook the lead heading down the stretch, over real estate after the latter briefly took the top spot last week within the major 11 S&P sectors (strength is strength no matter what group it emanates from and the thirst for yield is certainly a tailwind for the defensive XLRE). Notice discretionary making a nice push again as the XLY is the third best behaved group thus far in 2019. One should not be surprised if technology goes wire to wire this year, as it has held the top spot for the vast majority of time. Keep in mind trends tend to persist, more likely than they are to reverse. We have now written THREE consecutive technology reports, because that is where we are seeing the most opportunities.
VIX Lives Up To August Hype:
Volatility normally is heightened in August, and this year it lived up to those assumptions. It rose 100% between 7/25-8/5, and we used measured moves as a guideline (not a science), as they often have market participants selling potential big winners too early. But the instrument did nail a precise one to 25 from a bullish falling wedge, before a recent pullback is giving the chart the appearance of a bull flag formation. Since falling below its 200 day SMA on 2/1, it has spent the vast majority of time swimming underneath, until recently. It has CLOSED above the long term line 19 of the last 21 sessions. That moving average should be viewed as a line in the sand. Bulls may take comfort is seeing the 11 down days it has been above the 200 day since reclaiming in on 8/1, all CLOSED hard upon lows for the daily range. But once again candles and wedges give one an edge if used properly, but PRICE is omnipotent and must be respected above any other indicator.
Trades will often fail, and one has to be able to admit when they are wrong. It is part of the business and cutting them quicker, rather than later if they are not working, or if a stop is taken out is crucial, no questions asked. Below is an example of how I was WRONG with the chart of APPN and how it appeared in our 8/21 Technology Note. The stock was 20 handles above its rising 50 day SMA, and one would have thought that was extended. Couple that with the fact that software was weakening somewhat and it recorded a bearish evening star pattern at the round 60 number, and the bearish thesis was gaining steam. PRICE, all that matters, had other ideas and although it is still hanging around that level, it is better to preserve your mental capital on better fish to fry.