Douglas Busch

Defensive Posture? Give the consumer staples group a bit of acknowledgment as over the last one year period, they are the fourth best major S&P sector performer, higher by nearly 27%. That should be commended, as this group is prone to pay decent dividend yields and offer market participants at nice potential capital appreciation. Of course the group will have its fair share of leaders and laggards. Pepsi, for one registered one of its best weekly gains in one year, advancing 5% and bursting above a 140.55 cup base pivot. Kellogg which pays a yield more than 3% has gained 10 of the last 12 weeks, and is approaching a WEEKLY cup base trigger in a pattern 16 months long. Estee Lauder, seemingly a perennial winner, has added 75% over the last one year period. To be balanced the ratio chart below shows how it has not been able to cooperate in the same manner the S&P 500 has. Do not let that deter you from sifting through some nice names in the space.

Amazon Effect: As we know the internet behemoth is the largest component in the consumer discretionary ETF, the XLY, at nearly one quarter of the fund. It has been newly labeled a consumer name, but this is really a big part of technology. It is the fourth largest holding in the Nasdaq, at 5.6%, and therefore obviously has a big influence on the index. The chart below is an interesting one as it builds the right side of a cup base, and has just recently put on a handle on the pattern too. It sits 8% off most recent 52 week highs, which aligned roughly with the very round 2000 number. The positive signs include the huge move on 12/26/19, jumping almost 80 handles, and breaking above its 200 day SMA, a line that met resistance three times between last October-November. Give the base credit too as the handle is forming in the upper half of the pattern as well. To be balanced it has been trading a bit wide and loose, and that what makes a market. The only thing that matters in the coming weeks is a CLOSE above the cup with handle pivot, as PRICE supersedes all other indicators.

Pharma Takes The Baton: There seems to be endless conversation about the growth/value correlation. Chatter that declares value should start outperforming growth has fallen on deaf ears for the most part. If that were to take place, one area where it could materialize is within healthcare. Below is the ratio chart comparing pharma to biotech with the PPH:XBI (PPH is an illiquid instrument but gives a good representation of what is happening). Pharma still has some work to do according to the chart below, but on a YTD basis, obviously a small sample size, the PPH is up double what the XBI is. Wednesday the PPH rose 1.7%, AFTER Tuesdays rise of 1.8%, and it is moving robustly away from a bull flag breakout above a 64.50 pivot. We know the best breakouts tend to work right away, so this is a very positive development. Top component BMY itself has broken away from its own bull flag above a 64 trigger too, and LLY has lost ground just ONE day this year so far. PFE, which rounds out the top 3, did fill in an upside gap from the 7/29/19 session, so it could take a breather here.

I Know I Can, I Know I Can: The transports within the industrials, are as diverse a subgroup within a major sector. And they are as important as they come, as they are a great indicator of the genuine health of the economy. Products must be shipped through rails, trucks and planes, and aggressiveness in the latter is a good sign of a strong consumer willing to spend and travel. The chart below of the IYT is in familiar territory making a stop at the very round 200 number. Will the third time here be the charm for a decisive break through above the figure as it was pushed back their last September and November? Railroads make up the top 3 components and two of them sit just 1% off multi year highs in KSU and UNP. ODFL is now above a good looking cup base pivot of 197.35, and there is bifurcated action among the airlines. Stick with DAL which broke above the round 60 number to a high altitude, in a pattern that resembles a bullish inverse head and shoulders pattern. Measured move, or destination to 69.

Investment In Knowledge Pays The Best Interest: The above quote by Ben Franklin is relevant in both markets and life. By the look of the WEEKLY chart below of CHGG, it confirms the former. It is higher by 9% in 2020 already, and last week broke out of a sideways range that was dictated between the round 30-40 numbers. The weeks ending 9/27-10/4/19 and again the week ending 11/8/19 were all beneath the 30 figure intraweek but NONE finished below it. Last week demonstrated excellent relative strength higher by more than 5% in the best weekly volume in 2 months, after the prior 3 weeks ending 12/20/19-1/3/20 all CLOSED very taut within just 11 pennies of each other. This week is showing fine follow through up nearly 3% Monday. It still trades 14% off most recent 52 week highs, but building the right side of a potential cup base pivot of 48.32 (peer STRA is doing the same trading very taut). It has put up back to back strong earnings reactions higher by 8.9 and 14.3% 7/30 on 11/5/19. Respect the "education" the chart is giving, pun intended.