Inflation Pause? Last Thursday we had the benefit of being able to examine some MONTHLY candlesticks. In general the longer the timeframe the more meaningful. The most powerful sector by far in the first half of 2022 was energy and that had a big impact, many felt a negative way on the consumer in a myriad of ways. Not just filling up at the pump, but the cost of the goods they purchased was also boosted as a result of the inflated PRICE. Below is the chart of the XLE and its MONTHLY bearish engulfing candle may be providing some relief. Round number theory came into play with a precise bounce off the very round 20 figure in March 2020, and the very next month recorded a bullish piercing line candle. Now the tricky part is the range between those two months was very large, like the present engulfing candle in June. The XLE doubled to a high above 40 just 4 months later until finally, a bullish morning star pattern was complete in November. The 20-point range we saw in June could see some wild swings and I would not be surprised to see it trade up to the middle of that range into the 80s, but I think June pretty much said energy inflation will be easing heading into the back half of 2022.
What The Truck? For whatever reason it may be trucking stocks have been acting soft. Certainly, oil comes into play and labor shortages, but here we feel that is interpreted through individual PRICE action on its chart. Former standout JBHT which 3 1/2 months ago looked wonderful at all-time highs following a cup base breakout is now 27% off that peak. From darling to dawdler. ODFL is another one that led and that name has nearly sliced off one-third of its value since early last December. And this is at a time where delivery services names are starting to heat up, at least technically speaking. Perhaps the hedged regarding fuel PRICES, but again the chart gives you a visual representation of what is going on under the surface. FDX slipped 8% this week falling every day and recorded a bearish WEEKLY engulfing candle. Contrast that with UPS which rose 1% this past week. To add to the mild confusion logistics play XPO and GXO 47 and 58% from their recent annual peaks. The Dow Jones Transport Index has now CLOSED the last 3 sessions near highs for the daily range and finding bounces near the 1300 number. Action within is enough to "drive" one crazy, pun intended.
Mundane Rebound: A good way to determine investor sentiment in the healthcare space is to compare the conservative pharma names (although some of those have behaved like bullish tech stocks of the past recently) to the more fickle biotech names. If the ratio chart below is any indication the run that the biotechs have had may be coming to a pause. But remember just because one of the groups is acting better it does not mean both are not attractive. In fact, that may be the case presently. The PPH is home to mega-cap names such as MRK BMY JNJ MRK, and PFE to name a few. The latter is fighting to stay above the very round 50 number and is up this week heading into Friday following through after last week's first double-digit WEEKLY gain of 2022. The XBI is still 46% off most recent 52-week highs and giving a small bit back of last week's 14% jump. Perhaps a hybrid of the two going forward, as long as the XBI remains above 64 and the PPH above 75, makes sense.
Tech Dominance: And with that being said perhaps we can say fatigue after a long, powerful run (notwithstanding 2022 thus far). If one looks back since 2017, on an annual basis technology rose by at least 34% four times. Add to that it is the only sector that has beat the S&P for 5 straight years out of 11, and one can see why it has been struggling. Sure everything is, but if any group merits a well-deserved break it should be technology. That being said semiconductors and software, via the SMH and IGV are 35 and 39% off their most respective 52-week highs. How much more rest do they need? Of course, no one knows the answer but it could be a lot more or they could be nearing a corner. One has to say advantage bears as plenty of technical damage has been done and if the SMH loses 200, which many think could happen with MU reporting tomorrow after the close then things can get real ugly. The IGV remember has outperformed the SMH for 4 consecutive weeks, but this week headed into Thursday is trailing it narrowly.
Energy/Consumer Discretionary Intermarket Relationship Intact: Some relationships like in life, as in markets die hard. One was the liaison between the greenback and crude, which used to trade in an inverse fashion. They have both charged higher in recent times. A traditional relationship that has stayed intact is the one with energy and consumer discretionary. As one can see from the chart below comparing the XLE and the XLY they are on the opposite sides of the leaderboard on a YTD basis. The XLE is again the only major S&P sector of 11 in the green, handily so by nearly 40%, and the XLY is in the basement lower by almost the same amount. Making a comeback this week is the XLE up almost% so far after last Friday's bullish inside session off the round 70 number. Since the week ending 11/26/21 when the XLY recorded a bearish engulfing WEEKLY candle it has gained ground just 9 weeks. Even with recent robust credit card data the relationship remains unbroken.