"Safety" Definition Revisited: Cash is a position. Although many hedge their portfolios not to miss out on potential powerful breaks back to the upside after meaningful drawdowns, there is nothing wrong with moving to the sidelines. One can always reenter, and if one pays up to do so it is in my opinion responsible considering the alternative which could be a substantial selloff. Think of it "like a ball. You throw it up, it hits the ground, and it goes up again to a lower high, and it goes down again to an even lower peak". Think of it as insurance on a possible meltdown to your portfolio. Below however is a chart of the pharmaceutical ETF, in the PPH, and it shows an ominous bearish head and shoulders pattern. The right side is still in construction, but it is certainly something to monitor. On the ratio chart on the bottom of the chart, it shows there was an affinity for the pharma's over the biotechs, but that came to an abrupt end recently. Perhaps growth is just taking a well needed breather, witnessed by the VIX reversing intraday with a firm rejection at its 200 day SMA. Friday should provide some interesting clues, as Monday started in a robust fashion, although we know its not how you begin but how you finish.
Spot The Change? The overall software group continues to try and mount a comeback from the 9/2 highs. The process is slowing and if the IGV does not trade higher in quick fashion, the charts pattern is taking on the complexion of a bear flag. Keep in mind the ETF was weak even in the face of a very hyped up, recognizable IPO in Snowflake. One has to wonder if we will look back on this session and say that was significant in forming a top for the group. I personally do not believe so, but the 300 number which was resistance in July and August for IGV, must now hold as support. SHOP is feeling the weight of round number theory, with a bear flag of its own, as the round 900 number gave way today. If it does not a potential 250 handle measured move lower could be in store. DOCU is now 32% off its most recent highs. Below is the chart of SPOT which did record a pretty good bounce off 220. Previously it broke above a bull flag right at the 200 number, and todays intraday low could prove valuable if it holds, for a rally into year end and a move back toward 300, as a double bottom takes shape.
Biotech Bonanza? The XBI registered its third best daily performance Monday of 2020 (Tuesday it eased above its 50 day SMA), and its best in more than 5 months, gaining 6.9%. Volume came in powerful as well, reaching double the average, and its best in more than 8 weeks. As a whole the group has been a bit under the weather, but as we possibly witness some rotation into this space, one has to respect the fact that it would be rallying in the face of Washington speaking of controlling drug prices. It is most likely election rhetoric, and investors have to utilize the belief "that was is comfortable is rarely profitable". On 9/4 the XBI did just what it needed to with a bullish hammer off the very round par figure, a number that was significant resistance dating back 2 1/2 years. Conventional wisdom states that once that thorny resistance is taken out to the upside, it normally becomes support. It did just that after originally breaking above 100 in May in June, and a couple weeks ago. At the very least investors now have a very visible exit point, with a good risk/reward scenario.
What The "HACK" Is Going On: Within the strong software group dwells the important security group. And make no mistake about it there have been plenty of hacks all around the world, and for that reason alone one would think that the space would have been flourishing a little more than it has. Both the IGV and HACK are off 10% from their most recent 52 week highs, although as the IGV digs in and attempts do defend the very round 300 number, it is maintaining altitude above its 50 day SMA while the HACK is not. Top component SAIL is in fine technical form, but other top ten holdings like CSCO CLDR and SPLK are certainly weighing. Others peers like FTNT and CYBR can not seem to find their footing either with the latter down by 32% from its early February peak. FFIV and JNPR are also stinking up the joint. Perhaps there should be a greater weighting to better looking technical set ups in CRWD and ZS. Remember bottom fishing can be potentially very expensive, and wait until some bullish candles emerge to dip into some of these laggards.
"Value" Appraisal: As many continue to ponder whether "value versus growth" debate will have legs for the former, one has to give credit where it is due. For example the materials group is now the best performing major S&P sector on a one and three month time frame (second on a 6 month look back period too), and the XLB was the only sector of 11 that CLOSED the past week higher. On a more myopic view the XLI was the best performing group on Friday, and this area has seen some rotation as well, as capital is separated from technology. In a bifurcated group who would have thought that FDX would be on a current 10 of 11 week winning streak, beginning with a nearly 20% WEEKLY gain the week ending 7/3 in double average WEEKLY volume. ODFL is higher by more than 50% YTD as it grapples with the round 200 number, and NSC trades just 1% off most recent all time highs. Maybe one should start looking for the lower prong of names in the barbell approach (airlines) to start playing meaningful catch up? With Christmas no far away, John Candy, the star of Planes, Trains and Automobiles, would have been proud if the JETS could find some flight (automobiles not so sure I could have seen him in an EV GM vehicle).