Douglas Busch

Bellwether Bottoming? The leading semis have been one of the only names that have been holding up. The old saying goes eventually they come for all of them. But the other side of the argument states that stocks that hold up best in the storm will be the first ones to charge out of the gate once the group catches a bid. The daily chart below of NVDA encapsulates that theme best here and there could be some good risk/reward here after Thursday's bullish harami which CLOSED above its 50-day SMA after being below the line intraday. My feeling is that one can dip their toe in with a stop below the session low and if it holds a double bottom pattern is taking shape. Its WEEKLY chart incredibly met its measured move to 900 from the WEEKLY bull flag breakout, and it overshot it and last week recorded a doji candle which can often signal a change in the prevailing trend so let's keep this on a short leash. Notice on the ratio chart against AMD this is vastly outperforming with NVDA up 76% YTD compared to AMD rising a scant 5% in 2024 thus far. That all being said this market is in a downtrend so this favors a move to the downside so respect your stop below 824.02 on a CLOSING basis. 

Recession Tell: The big delivery service plays have always been watched to give clues on the possibility of recession. In years past FDX was considered a better economic read than UPS, then UPS was the better actor as seen here between 2018-2023 on the MONTHLY ratio chart. Since Q4 '22 FDX has again taken charge and for that reason it is the better way to gauge strength. The daily chart below shows it still well above its 50 and 200 day SMAs, something UPS can not say. Another good way to compare stocks against each other is by how far they are trading from their most recent 52 week highs. FDX is "just" 9% from its annual peak, while UPS is more than 3 times that at 28%. On a YTD basis FDX is higher by 5%, as UPS is lower by 9%. If FDX were to lose the 253 level that in my mind would be a big negative for the economy and overall market. The MONTHLY chart of FDX looks healthy as it retreats into a retest of a double bottom with handle breakout in a pattern 3 years long. I think this name will see the very round 300 number where it was rejected in June 2021, by the end of 2024.

Energy Assessment:   Even though energy is the best-performing major S&P sector YTD it will not be immune from the overall market selloff. Round number theory, not surprisingly played a role with the recent weakness in the XLE. It has set up a bull flag formation just below par, and last Friday was actually above intraday but ended up CLOSING below it and that was an ugly reversal. Monday followed through lower to the downside and we know from FALSE moves come fast ones in the opposite direction. Below is the WEEKLY chart of the XOP, and it is going to be tested this week and as it may not perform on an absolute basis I believe it will continue to outperform on a relative basis until the nascent softness subsides. Its daily chart perhaps gave a hint like the XLE the day before the ugly reversals Friday with the hanging man candle last Thursday. Select coal names, classified as energy, showed some decent relative strength Monday. HCC is holding just above a 62 bullish inverse head and shoulders breakout pivot, which carries a measured move to 72 which would put it above the encapsulated cup base shown.

Tech Listlessness: The old saying goes too "never short a dull market". And looking at the XLK WEEKLY chart below shows little movement, now just 3% off most recent all-time highs and falling 5 of the last 6 weeks. That could be the bullish take. Bears would state this indicates fatigue and churning action. Notice the doji candle 3 weeks ago that is often a good sign of at least exhaustion, and worst a change in the prevailing direction. Many would say that AAPL is the culprit, and with a good point as it makes up nearly 20% of the ETF, and it did display good action toward the end of last week, up more than 4% Thursday (easily its best advance of 2024), and Friday showed excellent relative strength up almost 1% with the Nasdaq off 1.6%. It did decisively recapture the 21 day EMA, and notice it is a rare name showing positive RSI divergence (a bit misleading as that was able to occur because of its prior outsized weakness). My feeling about the XLK is a visit to its 21-day WEEKLY EMA will give it a chance to reset, as it did in late October 2023. That would be roughly another 3% haircut from here and put it in a 5-6% correction mode, which could then after the rest give it stamina for the seasonally strong second half of the year.

A League of Its Own:   Some names are simply outliers. They are just different and all others would be happy to be mentioned in the same sentence. The daily chart below of NVDA is a classic example. It has sprinted above the competition and will likely not look back. It is looking at a possible 3-week losing streak, but notice on its WEEKLY chart, each time it has recorded a 3-week losing streak the very next week has advanced since late 2022 (keep in mind there were only two examples, both in the second half of 2023 in quick succession). Take note of the seasonality strength in May, the second-best month of the year the last 5 years up almost 17% and CLOSING the month higher than it started. As it has receded volume on the WEEKLY chart has been tame, especially compared to trade during the 11-week win streak that transpired immediately beforehand. Looking at how far it is to its most recent 52-week highs one has to respect that NVDA is "just" 11% from its annual peak while peers SMCI and AMD are 26 and 27% from their respective peaks.