Douglas Busch

Industrial Backbone: This week certainly had the feel of all the recent chatter that anticipated moves into more "value" oriented area. The barbell approach may start beginning to pay off. Looking below at the WEEKLY performance of the 11 major S&P sectors, shows a robust move from the industrials advancing nearly 5% (six of its last 7 WEEKLY gains rose by at least 4%). This move has been somewhat quiet, but the XLI is also the best acting group on both a one and three month look back period. On a YTD basis it still clearly lags, as it is just the NINTH best actor among the 11 major S&P groups (keep in mind it has never on a YTD timeframe been the top performer). Some of the areas that contributed to the solid weekly action were the airlines, which via the JETS ETF rose everyday this week jumping 7.8%. The rails put up some strong behavior with best in breed KSU up a combined 20% the last 2 weeks, both in active volume. And Friday afternoon came word that schools in NYC area, where I am from, will be opening this fall. That is a good sign, not just for parents in the tri state area, but for the continuation of the economy reopening, which should be wind at the back of the industrial space.

Size Matters: Concentration versus diversification. As the old adage goes "concentration builds wealth, and then diversification preserves it." Comparing the XRT to the XLY, could be a good example of that philosophy. AMZN makes up nearly one quarter of the XLY, while the top component in the XRT comprises just 1.8% of the fund. That would be the stock of Overstock, which has been on a monumental run as today was rejected near the very round par number, after trading near 2.50 in late March, not a typo. ETSY is the second largest holding in the XRT and that too has enjoyed a stellar run up almost 200% YTD thus far. As one can see from the chart below the XRT has been outshining the XLY, and we mentioned yesterday how many companies are adapting well in the Amazon era. Other names in the XRT top 10 holdings include GPS, which may have beefed up its online capability, but I just focus on PRICE action. Hard to believe but its chart has a bullish tint to it, as it records its seventh straight CLOSE above its 200 day SMA. There are better fish to fry in the space in my opinion, but it is good to see a healthy amount of names acting well.

Risk "Indifferent": Discretionary via the XLY is firmly the second best of the major 11 S&P sectors YTD up 12%. Most likely is not going to catch technology which is the strongest actor as it maintains a '73 Belmont Secretariat like pace over the field up 25%. The staples are behaving well higher by almost 2% in the middle of the pack. Over the last 2 months however they are keeping stride with their discretionary cousins. The death knell of consumer stocks in the Amazon era, has been greatly exaggerated, as there are a multitude of names higher by more than 50% YTD, including BIG CWH PTON WING FLWS BJ TSCO and PZZA to name a few. Some staple standouts include CLX and BYND, with the latter looking like it was breaking ABOVE a bearish head and shoulders formation until earnings today. The absolute beast in the space in SAM which has more than doubled this year, and nearly broke above a bull flag formation, until recording a bearish shooting star at all time highs. 

Semis Ready For Another Thrust? The semiconductors have a good stickiness feel to them as they attempt to climb above a bull flag pattern on the ratio chart against their software peers. We mentioned recently how bullish the three very taut WEEKLY consecutive closes were between the weeks ending 7/10-24, with each CLOSING within just .75 of each other. AMD has been a standout, at INTC's expense, NVDA continues continues to lift off the very round 400 number. IPHI did record a bearish reversal today after earnings, but it too has been a leader. ACMR should be on investors radar with a double digit WEEKLY gain already, and this is excellent follow through after the prior week jumped 13%. I still think one should overweight semis compared to software as the ratio chart below suggests. But most likely both will act well going forward, as evidenced by FLSY TDOC DOCU and SHOP. The Nasdaq overall is extended, but it did CLOSE above the 10800 number I was concerned about recently. FANG is not holding up its end of the bargain as AMZN GOOGL and FB are cooling off here. Once they catch their breath, expect a potential surge above the very round 11000 figure.