Douglas Busch

Confusing Composite: Many interpret a healthy bull market with an abundance of participation from the vibrant technology sector. It gives a "risk on" flavor as investors search for capital appreciation. The Nasdaq has been sending mixed signals. Over the last one month period tech, as measured by the XLK, is just the seventh best major S&P sector of eleven. The index should be given the benefit of the doubt as long as it remains above its 50 day SMA, but its leash is getting tighter. A potential handle on a cup base that began on Monday 10/12, is looking more like a potential double top at the round 12000 number, and notice on the chart below that 10/12 session traded into a bearish doji candlestick at all time highs recorded on 9/2. That type of candle often foreshadows a change in the prevailing trend, and thats just what it did with a 1600 handle decline in a rapid 9 of 12 day losing streak. Question now has its "time served" been enough? Next week is crucial as this elongated handle is becoming more faulty by the day. Obviously the benchmark is hesitant with a looming election. Keep it simple, and remain mildly bullish as long as we float above 11300. A CLOSE underneath that number and all bets are off.

Hated Enough? When sentiment within a sector becomes too negative, it could be a sign that things will eventually change. Of course in my opinion the only way to truly gauge that is through affirmative PRICE action, and looking at each individual name on its own merits. The XLF deserves to be in the doghouse, as BRKB, the top holding in the XLF, is now looking to complete the right clavicle in a bearish head and shoulders pattern, and a move below a neckline pivot of 205 carries a measured move to 187 (its 200 day SMA has been sloping lower for one year now). The second largest holding with the fund is JPM, and it currently trades 27% off most recent 52 week highs, and to be frank has held onto the very round par number well. BAC is trading below both its 50 and 200 day SMAs, and rounding out the top 10 would be another weakling in WFC which is 58% off its most recent yearly peak, and it has formed a bear flag formation after this week has done nothing in the way of rectifying last weeks cratering of nearly 10%. This action has cast a pall over some names within the arena, that could provide some attractive opportunities.

Truckers Delight: We are all aware of the special action in the delivery services plays like FDX and UPS, and other modes of transportation have been acting well too. Consider the rails, which had a rough day Wednesday, but overall leaders remain within close distance to all time highs. KSU could be in the process of attempting to build the right side of a cup base that was halted precisely at the very round 200 number, and it was one of the only names in the group to advance today, albeit fractionally. The airlines have been obviously under pressure, with one of the only charts in the space with a decent complexion being RYAAY. Below is the chart of a trucking general in ODFL, which like other industrials seems to be pausing, and hopefully refreshing, near the very round 200 number. Peer J is having issues with the very round par number, as it was above 100 intraday 6 consecutive days between 10/12-19, with just one CLOSE above (it now sports a bull flag formation and a finish above par carries a measured move of 10 points higher. Back to the truckers, and CHRW is another member of the field that seems to be held back stuck in rush hour traffic currently at the very round 100 figure.

Equipment Check: As the biotech group begins to take some water onboard its ship, with the XBI down more than 3% already this week, some focus has turned to the steady, seemingly reliable medical equipment names. Below is the chart of the IHI, and it has handily outperformed the XLV on both a YTD and one year look back period. The IHI has gained 18% YTD and 27% over the last one year period, while the XLV has risen by 5 and 16% over the same respective time frames (of course the XLV has a bigger dividend yield at 1.9% compared to the IHI at just .3%). Leaders within the equipment arena include a STAA, which has exploded this week breaking above a 61.96 double bottom pivot on Monday. It has screamed higher by more than 18% this week already, as its first 4 week winning streak in 14 months looks assured. Three of the last 6 weeks with NVCR have been double digit gains, as a bull flag takes shape, with a move above the round 140 number buyable. SWAV has recorded nearly a double from just the July lows, and a pullback toward the upward rising 50 day SMA should be taken advantage of on the long side. 

Smaller Advantages: As in life, with stock markets sometimes it is helpful to be smaller in stature. It is easier for a smaller cap company to maneuver, as it has the advantage of agility, unlike a mega cap supertanker that takes a long time to adjust. Of course scale matters, but some smaller names have taken on the challenge against an AMZN, or at least some of the charts, and PRICE action, are saying so and that is all that matters to us. Many of these names reside in the XRT, a more "equal weight" consumer ETF. It trades right at a cup base breakout pivot, and to be frank we would like to see it accelerate higher from here a bit faster, as we know the best breakouts tend to work right away. Another smaller analogy regarding something special to me is in tennis. The shorter, more nimble player is faster and normally able to run down lots of balls, eventually wearing out the taller, less "athletic" player that will have trouble generally with his or her mobility. Perhaps the best thing for the ETF this week would be if it can CLOSE very taut to where the last two did, and form a bullish 3 week tight pattern after the weeks ending 10/2-9 added a combined 10.3%.