Douglas Busch

Alternative Viewpoint: There is no question technology is an unloved sector and perhaps the old adage comes into play, "to buy when there is blood in the streets." The technical damage within the sector will take time to work itself off but nothing goes up, or down in a straight line. It would be a lonely view to be bullish here but there will be some volatility in September for sure. That will make for some possible tactical plays for market participants to trade around core positions. The daily chart below of the XLK shows a potential decent long scenario as the ETF trades back into a bullish island reversal at the still upward-sloping 200-day SMA. Its WEEKLY chart shows a doji candle the week ending 7/12, which was also the middle week in an evening star pattern. The week ending 8/23 traded into the middle of that formation and now is trending lower again. The MONTHLY chart shows August with a long-legged spinning top candle, in a very wide range similar to what occurred in August 2015 and March 2020 (both at the 50 MONTH SMA). Those were turning points that sent the QQQ higher, but last month came from an extended position. Use the 200-day SMA on the daily as your navigator short term, and one must admit they are WRONG with a CLOSE below that line.

Rethinking the Consumer Narrative:  The discretionary space in 2024 has not been the place to be, as it continues to inhabit the worst performance among the 11 S&P sectors thus far on a YTD basis. The XLY is higher by 4% with 4 months left, and we know trends in motion tend to remain that way more likely than they are to reverse. Overall there were some ominous signs Tuesday with the weak action with new month money normally providing a bid, and holiday-shortened weeks which tend to be bullish (of course, this week has 3 days to go). But in general, we know snap-back rallies within bear markets can be violent and perhaps that is what occurred between early August and the present. We pondered whether the broadening out of names acting well excluding AMZN and TSLA would correspond with a breakout above a MONTHLY bull flag. PRICE did not confirm, and the next likely scenario would be a handle forming at 50 MONTH SMA support in a long cup base that began with a sound rejection at the very round par number in late 2021.

Gaining "Steam": Steamboats were a significant invention during the "industrial revolution", and the sector as of late has been on the ascent. The group since mid-November has been a stellar performer and if one squints here they can see they are the second-best actor of the major 11 S&P sectors trailing only the financials. It is the black line on the chart and last week overtook both communication services and utilities. Within the space, railroads are continuing to move higher, a good sign of economic activity, with leaders UNP and NSC adding 4 and 6% last week. The former recorded a breakout above a WEEKLY double-bottom pivot of 246.27 last week and the MONTHLY chart took out a cup with handle trigger of 254.62. I am not endorsing them but the airlines could be making a move with an unsure crude direction as the JETS are on a 4-week win streak following a bullish counterattack candle the week ending 8/9. Defense stocks have been putting on a show and the ITA MONTHLY chart registered a bullish hammer candle in August. The group is firing on all cylinders and look for it to continue to do so if this "value versus growth" story keeps playing out.

Roadblock Weakening? Biotech has been a tough place to be since the 2021 top. The MONTHLY chart below shows the visual pain investors have had to endure following the bearish shooting star candle in February of that year. The ETF declined 13 of the next 17 months hitting a peak near 175 to a low of 62. From there the fund vacillated roughly between the round 70-90 numbers before breaking above 90 this February and that stubborn line of resistance now looks like support as it was firmly retested and held in May and July. We know that the vast majority of instruments that trade through 90 will reach par and beyond and that is where the ETF has been stuck. Notice the 50 MONTH SMA resides there and the XBI was above that line intramonth in February, March, and July this year but all three were unable to CLOSE above it. It has now formed a bull flag and it will be interesting to see where this finishes August on Friday. The daily chart this time around, for the time being, has held up better than the early and late July examples. That's a good start. Let's see where we finish to end the week and August.