Awakening The Sleeping Tech Giant: We have brought up this debate before recently, and the question is still up in the air as to whether technology is just resting or is the strength in the cyclical names over the last one month period transitory? One can see on the chart below, during that one month time period technology is just the fourth best major S&P sector performer of 11. And in front of it are groups tied to the economic cycle like energy and materials, and nipping at techs heels are the industrials too. My belief is that technology is just prudently pausing, and strength often begets more strength. AAPL, basically a proxy for the Nasdaq, is sniffing out a cup with handle pivot of 324.34. AMZN still sits just 2% off most recent all time highs, and MSFT has carved out its own cup with handle trigger of 187.61. If any of these, or perhaps all three break out, FOMO will likely just be getting started with the $8 trillion on the sidelines ready to start a stampede. Capital gets allocated to where it is treated best and with the Nasdaq just 3% off most recent all time highs, and the S&P 500 10% and the Dow 13% off its own peak, do not be surprised when a fresh, well rested Nasdaq comes into contact with the very round 10000 figure.
Growth Still Getting Job Done: The competition between "value" with the XLV, and growth concerning the XBI, still is in favor of the latter in a big way. The XBI is now higher by 10% YTD and 31% over the last one year period, while the XLV is UNCH YTD and up 17% over the last one year period. The bulls are defending the very round 100 number well, and all 5 of the last 8 sessions that rose for the day CLOSED right at the top of the daily range, a positive trait. The 5/27 and 5/29 sessions both bounced robustly off the 100 figure, both finishing 3.5% above the number. Let us give credit where it is due, and the XLV is still holding the 100 number too, but its bull flag is getting a bit long in the tooth to be considered valid. Give the "value" ETF some applause for not slipping too much with PFE, its third largest component down by 7% Monday. Speaking of the round numbers, UNH recorded its fourth straight CLOSE above the 300 figure.
Bullish Digestion: The name Amazon has stoked fear in most retailers, and below shows why with firm PRICE action. In my opinion this stock is just an own play for the long term, much like AAPL, and probably one not to trade around too much. On the WEEKLY chart below one could see the presence of a couple bull traps. First was the move in February through a bullish ascending triangle that formed in conjunction with the very round 2000 number. Then the week ending 5/22 recorded a reversal after breaking above a bull flag pattern intraweek. This past week registered a bearish hanging man candle, but one has to admire the very tight trade following the 6 week winning streak, between weeks ending 3/20-4/24 which rose 51.3% from top to bottom. Friday ended a 5 session losing streak, with 4 of the 5 days CLOSING right near lows for the daily range. This is a name to watch closely for its impact on not only the XLY, but its huge influence upon the major benchmarks as well. At the present moment the way it is trading tells me, good things are still on the way.
Gap fills are a widely known strategy in the market that can be applied on both the upside and downside. The strategy is basically self explanatory, and gaps that fill to the downside after a very strong move gives investors good risk/reward to open a position. A gap is simply a pocket of air, in between two different time periods on a stock chart. It is very likely to be following an earnings release, potential takeover news, etc. Often after a gap fill, one will see a powerful intraday reversal, so one should be ready to pounce with a limit order to take advantage of the situation.
Round number theory is one that is under followed, and not given the credit it deserves. It is a simple, yet effective tool that can help investors trim or add to core positions. The round figures often will serve as support, or a roadblock. Some round figures are more important than others. First time trading above 10 can give a stock a boost, as some mutual funds are not permitted to own single digit names. The 90 number is very important, as many studies have shown that the first time a stock trades through that level it very often trades to par and beyond. Whether the reason that round number theory works is psychological or not, it does not matter. Follow PRICE action first and foremost. Below let us take a look at some more examples.