Douglas Busch

Bloated Biotech: The biotech space was supposed to get a lift in November on bullish seasonality patterns. Over the last one-month period the XBI has declined by 13%. On a YTD basis, it is lower by 19%, and comparing it to the XLV which has gained 15% we see there is a "risk-off" feel to the group. The more conservative PPH is higher by 7.5% so far in 2021, and the top-heavy IBB is basically UNCH so far, acting much better than its more "equal-weighted" XBI. AMGN and GILD are the number 2 are 3 holdings in the IBB and Amgen is doing its best to remain above the very round 200 number and Gilead is now putting a handle on its cup base with an entry above a 71.42 pivot. The XBI is giving a much broader look as there are essentially no components with a greater weighting than 1% in the fund, and it underscores the weakness within. It is well below both its downward sloping 50 and 200 day SMAs and with an RSI below 30 one could expect a bounce, but it will most likely be short-lived.

Housewarming Present: The consumer discretionary group has been aided over the last one month period by the home construction and home improvement retailers. Those are both easily the best subsectors within the space on that time frame. Below is the chart of the ITB and one can see it has had a nice run and is trying to bull flag just below the 80 number. Focus on the leaders within and a good place to start is SKY which is higher by more than 100% in 2021 thus far. The stock is also bull flagging near the 80 number here and is acting very well POST breakout above a cup base pivot of 66.92 taken out on 11/3 (was the stocks SIXTH very firm positive earnings reaction). The name is 7% from the most recent 52-week highs, and of course, there is bifurcation in the group with PHM still in bear market mode 22% off its peak made in May. If it can get above its 200 day SMA while it hovers near the very round 50 number it could be a good start to building the right side of a potential cup base. A WEEKLY break above 80 for the ITB could be an early holiday gift for shareholders of the builders.

Software Limp: The software space has been pushed around over the last one month period by the semiconductors. During that time frame which the SMH gained 13%, the IGV fell by 6%. The IGV is 8% from its most recent 52-week highs, double that of the SMH, as the line in the sand for the latter is the very round 300 number. With most of these instruments including the indexes trade at this altitude is very choppy and indicative of topping action (bottoming action tends to be gradual and tighter). Some interesting developments among the funds largest holdings were the CEO of MSFT selling nearly half of his shares. Of course, the stock has had a long run but selling a quarter of a billion worth of stock for personal reasons seems a bit excessive. ADBE recorded a bearish engulfing candle at all-time highs on 11/22, and INTU, the number 5 holding reversed hard on 11/19 at the same 700 number. An area of long interest could be a gap fill toward 637 from the 11/18 session.

Northern Hemisphere Versus Southern: The two heavyweights in the internet retail arena are diverging. It is a recent development, but it is starting to become noticeable. On a YTD basis, there is a strong contrast too as AMZN is higher marginally by 10% and MELI is lower by 26% thus far in 2021. Looking at the ratio chart below one can see that AMZN is strongly pulling away after a nice breakout, and the last month is glaring. Amazon has advanced 6% while MELI has lost 17%, and on a 3-month lookback, AMZN has gained 5% whereas MELI has dropped 34%, not a typo. MELI has recorded back-to-back WEEKLY double-digit losses, both on the strongest WEEKLY volume in the last 6 months, and highlights round number theory as it recorded a double top at the very round 2000 figure in January-February and again in September. AMZN sits 5% off most recent 52 week highs (MELI 39% off its own yearly peak), and to me that 3600 number is key. It was the scene of a bull flag breakout which has since failed. However, if it can hold 3500 a handle is taking shape within the cup base pattern that began 5 months ago. 

"Services" Stab: The communication services group from a YTD perspective may have some leaning negatively. It is still higher by more than 14% in 2021 this far, but comparatively speaking that makes it just the 9th best of the 11 major S&P sectors. Last week it slipped more than 3% making it the 10 best of the 11, and on a 3-month lookback period, it is by far the worst actor off more than 7%. The action in the XLC does not tell the whole story however as there is major bifurcation within. The internet names as a whole are up more than 30%, while media, fixed-line, and mobile communication are all off between 8-15% in a very healthy overall market (of course other laggards that are lower YTD include SNAP TWTR PINS GDDY). Looking for leaders that may have been weighed down by the anchoring spaces one would find NFLX and GOOGL, which were rejected at the round 700 and 1300 figures this month. Below is the chart of DASH which could be presenting an opportunity. Last week dropped almost 13% and CLOSED just above the lows of the huge week ending 11/17's gain of 24% in the third-best WEEKLY volume since it started trading one year ago. The double bottom near 260 seems to have played itself out and as long as it remains above its 200 day SMA paint the picture bullishly.