Douglas Busch

Safety Net?   When one looks at the biotech space there are two ETFs in which the focus is. The IBB which is a bit top heavy with the more mature names that often pay decent dividends, think defensive. And the other one is the more "lively", no pun intended with the XBI. One often uses them to gauge risk/reward in the space and the ratio chart here suggests the IBB is getting more attention. It has carved out a bullish inverse head and shoulders and one has to give the nudge to it following the March-April uptrend. Give the XBI credit as it has formed its own inverse head and shoulders formation and the move through 92 carries a measured move to 103, and notice how earlier in May it recaptured the 21-day EMA which is now sloping upward. I think one can have a bullish slant on both, and do not rule out the small caps as the PSCH (small cap, although illiquid, healthcare ETF is looking to break above familiar overhead resistance with the overall small-cap space catching some love).

Spinoff City:   Normally when looking at the industrial space we take a look at some of the more familiar names in FDX and UPS, which quite frankly are a bit concerning. But today let us take a look at a few newcomers. With all the chatter about how utilities are becoming "growth" stories, CTRI was just spun off from SWX. Some classify it as an energy name, some an industrial with a slant on infrastructure, and this really should just be kept on a watch list as it is just one month old but it has traded in a very taut range and a break and CLOSE above 25.75 can be bought. ATMU, a recent spinoff from CMI, has acted well POST breakout from a 25.49 cup base pivot from 3/13 and then recently touched its upward-sloping 50-day SMA for the first time following the breakout, often an ideal entry add-on buy point. One can look to purchase now with a buy stop above a double bottom pivot of 31.62. Below is the chart of VLTO, a spinoff from DHR, and it now trades at "52-week" highs (has been trading since last Q3 2023) and has seemingly traded straight up since a strong 4-week losing streak last October as seen here on the WEEKLY. Since the overall market bottom in late October-early November it has lost ground on a WEEKLY basis just 9 times.

European Excellence?   Of course, that subject line may be a bit misleading, but one must give credit where it is due and PRICE action currently is suggesting performance going forward may outshine our domestic peers. EUFN is putting up impressive numbers, higher by 9 and 18% over the last one and 3 month time periods compared to the XLF rising 4 and 8% respectively. Some of this could be the deterioration of BRK/B, which we will discuss later in this note, but some foreign names demand investor attention. Looking at ADR charts of some European names like DB is not shying away from an upside gap fill from the 4/26 session here which completed a bearish island reversal (it has now posted three strong positive earnings reactions in a row). BCS is up 40% YTD, and pays a dividend yield of 3.7%, and is pushing away from a bull flag pivot of 10.50 which carries a measured move to 12. Overall the group seems fine, with even the KRE breaking ABOVE a bearish descending triangle and we know from FALSE moves come fast ones in the opposite direction.

Intermarket Relationship:   Most market participants are aware of the relationship between interest rates and biotech stocks. These names are dependent on financing to stay afloat and if the ten-year yield is rising it is certainly a headwind. Tuesday it recorded a bullish hammer candle right off the rising 50-day SMA after the bull flag breakout in early April, often a solid entry point. Bears will declare that it nearly reached its measured move to 4.9%. On its WEEKLY chart, it has the look of forming a possible head and shoulders pattern, and notice the bottom of the cup successfully retested a previous double bottom breakout. Something is going to have to give as the XBI, if it can bottom here at this week's lows could be building the right clavicle on a bullish head and shoulders formation, with a break above a 92.50 pivot that would carry a measured move to 103. Or if by judging by the overlapping PRICE chart of the TNX and XBI sometimes these two instruments can trade in harmony.

I Think I Can, I Think I Can:   This children's video which does contain an industrial slant to it (showing my age here) could be describing the daily chart of the XLI as it pushes toward a potential cup base breakout (it will not be easy to push above the 126ish level as there are a myriad of dubious candles including dark cloud cover, evening star and engulfing all circled). The ETF is now just 2% off most recent 52-week highs and the WEEKLY chart does show the presence of two doji candles recently, which often indicate exhaustion, but for the time being it has been ignoring them. The bulls can point to the last 2 weeks both trading inside the week ending 4/19 that slumped 2%. Referring back to the video in the opening sentence of this paragraph some of the rail stocks need to show a bit better to help guide the XLI higher. The names have more of a concentration in the IYT, with UNP the second largest component. It is now pushing up against its 50-day SMA and if it can push above that line a double bottom pattern with a pivot of 250.46 takes shape. Of the domestic players one can see this is the best of breed since last summer. It has to show the way.