Douglas Busch

Material Witness: The materials group is just the ninth best major S&P sector out of 11 on a YTD basis, a bit misleading as the XLB has still advanced almost 15% thus far. It is outperforming just the staples and utilities. The ratio chart below shows the glaring weakness against the S&P 500, and gold has been a big drag, along with containers and packaging. Interesting enough in the latter space a new IPO, which trades very lightly could be emerging as a leader in KRT. After spending much of June and July seeing the very round 2o number being supportive, last week screamed higher by 15%, and Monday witnessed some nice follow through (compare the action against peers CCK BLL and PKG all off between 13-21% from most recent 52 week highs. Steel on the other hand has been a boost to the group. TX, a Luxembourg play, is on a very impressive 5 week winning streak and has acted well POST breakout above a 39.70 double bottom pivot. Aluminum has helped the materials as well with AA up nearly 70%. 

CLOSE > Open: There are two words we always capitalize in our daily writings. They are PRICE and CLOSE. PRICE is how we are paid and judged upon, and the CLOSE is much more important than the open. Remember the phrase, "amateurs open the market and pros CLOSE it." This week the Nasdaq did that every session rising 2.8% to an all-time CLOSING high Friday. Even more positive is the fact that 7 of the last 9 weeks that the Nasdaq rose, the WEEKLY chart CLOSED at highs for the range all 7 times. It may be easy to say the easy money has been made within tech, but remember trends tend to extend much longer than we think, and they are much more likely to persist than they are to reverse. This past week technology was aided by some strong earnings reactions most notably in SNAP and TWTR Thursday after the close. To be fair IBM and NFLX reversed Wednesday after early advances, and INTC imploded Friday losing 5%, its FIFTH consecutive negative reaction. Next week beginning with Tuesday after the close we see results from AAPL AMD MSFT and GOOGL and more in the days following. Next week's CLOSE will be very telling, and a lot can happen in the meantime.

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"Soft"ware Acting Firm: Frequently when writing a tech note I like to compare two of the more important spaces within, in software and the semiconductors. Both are acting well and deserve your capital. I give a slight nod to software at the moment even though the SMH is more than tripling its return this week so far up almost 3%. A reason for that is the tight nature in which the IGV is trading, a hallmark bullish trait, as opposed to wide, sloppy trade that the SMH is exhibiting. A bonus within the space is the elevated pace of M&A, as FIVN is being acquired by ZM. Other deals in recent months have been CLDR and NUAN, and of course, WORK being swallowed by CRM last December. LYFT is acting well after a nice push off the very round 50 number and 200 day SMA support. Surely there are laggards as names like YY off 60% from most recent 52 week highs, and what about the name no one could stop talking about earlier this year in FSLY now off 62% from its yearly peak. Action like that speaks volumes within a strong space. Make sure you are listening.

How Quickly Things Change: No one ever said investing was an easy endeavor and the last few months have certainly confirmed that. Below is a chart I like to post from time to time from The Novel Investor. And one can see from just 3 weeks ago energy had a 20 percentage point lead over its nearest major S&P sector competitor and the end of the first half of '21. As of Monday that lead evaporated, in a collapse similar to the New York Mets in 2007. The XLE is now less than 1% underneath real estate via the XLRE, and the second best sector now this year as of Tuesdays CLOSE. I was one to believe that the group would go wire to wire this year, and that will now have to be played out. The XLE is now a quick 16% off recent highs, and witnessing some distribution with big volume losing weeks ending 6/18 and last week off 5.4 and 7.9% respectively (the XOP recorded a Doji candle Monday, which are adept at calling for prevailing trend changes, and this ETF reversed off the very round par number just a couple weeks ago). Give credit to the OIH bouncing off its upward sloping 200 day SMA Monday too.