Douglas Busch

Round Number Speedbump:  When one sets out on a destination there are often pitfalls that come along the journey. The daily chart below of TSLA shows how it recorded a bearish spinning top candlestick at the very round 400 number Monday. I am still very bullish on this name, but candles can help one get a better basis, or shave around a core position on weakness or strength. This may be for the latter. This is probably a good time for one of my favorite thoughts for long-term investing, "When you're in a nice trade, great entry, solid plan, well thought out target and you're getting that itch to tap out early, remember what the old man told me on the NYMEX floor 'Hey kid if you want to take the train to California, you don't get off in Chicago". (Jimmy Jude). My belief is this is still headed toward the 480 measured move from the bull flag breakout but may need to catch its breath near 360 first. The MONTHLY chart shows how it came very close to a 414.60 cup base pivot Monday morning that started with that doji candle in November 2021. Keep an eye on peer RIVN which we wrote about in our 8/19 Consumer Note and how it was feeling fresh at the very round 10 number.

Double in Two Years Frothy? The Nasdaq has now ran from the very round 10000 number at the start of 2023 to sniffing out 20000 this past week. Along the way bullish candlestick patterns have aided long term investors where they could lean in on their long exposure. The last two occurred at the rising 50 WEEK SMA and we are now nearly 3000 handles above that secular line. Bearish patterns have been mixed in the success with a bearish evening star pattern completed the week ending 7/19 resulting in a 16% haircut, but the bearish dark cloud cover candle the week ending 11/15 that slipped more than 3% displayed absolutely no downside follow through. The MONTHLY chart shows it totally ignoring the doji candles in August and October, and shwoing how less reliable the dubious candles are in an uptrend, compared to the bullish ones in a downtrend. Notice the negative divergences but these should not be acted upon until PRICE confirms weakness, as that action can go on for years. As someone who has an affinity for round number theory (Bitcoin 100K, dollar bouncing off par in, and TLT reversing there) I am not necessarily calling for a big reversal here, but be vigilant. Salty investors are always more concerned about the downside. Software continues to be firing on all cylinders and the semis feel like they are wanting back in the mix. That would be a lethal combo going into 2025. Just beware things always feel rosy at the top. Will that be very soon, or months out on the horizon?

Guilty Until Proven Innocent:  When you are trying to succeed be aware of the company you keep. Relating to the stock market that means putting your capital to work in names and areas that are proven and deserve it. The analogy I like to use is if you want to win the World Series you are going to put your all-stars on the field, not your triple AAA players. Looking at the healthcare space with a few weeks left in 2024, the XLV is in the cellar, the worst actor of the 11 major S&P sectors on a YTD basis, albeit still higher. All rallies within the space should be viewed as suspect until further notice. This will be a stock pickers game, as technicians always believe it is, but the odds may be stacked against them. As a rising tide tends to lift all boats, the opposite is true as well. But will investors start to take a look at this beaten-down group with a new regime in place? The first place to look is for individual names that demonstrated relative strength in 2024. And although these names are in the penalty box maybe they have paid their dues, but keep a tight leash (stop) as always as their trust must be earned. The daily chart below of the very diverse XLV paints a pessimistic picture. 

Mister Softee "Firming" Up:   That oxymoron could be a good omen for the software group that has flourished without the third-largest name on the planet. If this name can join the fray it could give the space some added fuel to the fire. Notice below on the ratio chart compared to the IGV it has been in a slow and steady downtrend for at least 6 months. There does seem to be a new-found affinity for mega caps with the META breakout that we spoke of this week, and AAPL now distancing itself from a 237 WEEKLY bull flag trigger that carries a measured move to 311. The MONTHLY MSFT chart sports a bull flag, but it feels like its dominant years may be in the rearview mirror. I would love to be proved wrong, but look at the very clean uptrend between 2016-22 that never recorded so much as a 3-month losing streak (and fell back-to-back months on just 3 occasions). The streak did end with consecutive doji candles in November-December 2021. On the MONTHLY RSI notice it is just a shadow of its former self which traded above 80 for a good chunk of 2017-21 and since its velocity of PRICE has slowed. That being said software peers would welcome MSFT with open arms in a stab to reclaim the good old glory days. 

Looking Beyond AMZN and TSLA:  With Amazon and Tesla trading right near 52-week highs, and deserve attention, there is plenty going on beneath the surface. As a whole, that statement can be visually seen in the PRICE action of the daily chart of the XRT below. The ETF now trades just 2% off its annual peak and has been smartly digesting the big 3-day win streak between 11/21-25 which rose by 1.7, 2.7, and 3.7% (with the last 2 sessions both coming in double average daily volume). The MONTHLY timeframe witnessed a big breakout in November above a long cup with handle and I believe this will hit the very round par number again in 2025, where the base commenced 3 years ago. Backing up the breadth story are good-looking charts in URBN breaking above a cup base trigger of 49, BKE nearly hitting its measured move above a bull flag breakout to 56, and GAP on the WEEKLY chart pushing toward the upper end of the range between the round 20-30 numbers. Consumers are clearly thinking better about the future and it is showing up in strong PRICE action. Trade accordingly.