Douglas Busch

One-Two Potent Combo: Some of the big holdings in the XLY, which is very top-heavy, have been making their presence felt. Home Depot is just 1% off all-time highs, MCD the ETFs fourth-largest component is at all-time highs, and of course, there is NKE which has been slumping and is now off a quick 15% from highs made on 8/6. But the two that matter the most, and which make up more than one-third of the fund are AMZN and TSLA. AMZN in my opinion it is at a critical juncture here as it could be constructing the right side of a bearish head and shoulders pattern that began at the start of April. However, a break ABOVE that could produce a very solid move to the upside. Below is the chart of TSLA and this one is rapidly building the right side of a WEEKLY cup base formation. It is dealing with the very round 800 number, and the pivot in the cup is another 100 handles higher, which it can achieve pretty fast. I am not recommending any trades on the two, but just to demonstrate the power and influence they have on the XLY. Strength from both of them could turbocharge the space.

Ordinary Industrials: Looking at the industrials as a whole, the XLI since 2007 has never been on a YTD basis better than the third-best of the major 11 S&P sectors. It has been a status quo actor, and that is being nice as 10 of last 14 years it did not outperform the S&P 500. In 2021, nearly three quarters in, the XLI is higher by almost 14%, as the S&P 500 has advanced almost 19%. That does not mean there are opportunities to be had, but maybe one needs to temper their aspirations to a degree. Weighing down the overall space this year have been the railroads and delivery services. Showing firmness has been heavy construction, which has been consistent throughout as the best sub-sector on  YTD and one-month look-back time frame. PWR is a best of breed name and is still above the WEEKLY CLOSE the week ending 9/3 which rose 12.2% (best WEEKLY gain in 14 months) in double average WEEKLY volume. Airlines may be ready for take-off, pun intended, although some international players are already at a higher altitude than domestic peers. Think RYAAY or VLRS. The JETS ETF is still 16% off most recent 52 week highs, but it rose 7% the last 3 days of the week forming a bullish three white soldiers pattern in robust volume. 

Big Boy Forking: With the incessant chatter about how the rally has been held up by the mega-caps, some of them are not doing their fair share. Sure MSFT and GOOGL are with the former honing in on a 305.41 double bottom pivot, and the latter showing the same pattern with a trigger of 2889.11. Neither of those 2 giants CLOSED below their 50 day SMAs during the volatile action this week. But give the Nasdaq credit for doing what it has the last 3 days of this week, without the participation of AAPL and FB. Facebook looks like the more wounded one as it is still lower by 5.1% headed this week into Friday. Volume this week is heavy, the second largest in the last 4 months already with still one day to go. AAPL on its WEEKLY chart at least is attempting a comeback as it found a floor near the round 140 number, a level twice rough resistance last August and this January. If those two can get their act together a run to the very round 16000 figure is in the cards for year-end.

Discretionary Bifurcation: With more than one-third of the XLY components in just the top 2 names in AMZN and TSLA, we see diverging action. Over the last 3 months, AMZN is lower by 3% while TSLA has gained 14%. When I look through the overall retail group I see a plethora of names trading below their 200 day SMAs which include stocks like LE GPS URBN AEO FL RL and VFC. I could go on and on but I think you get the picture. In the casual dining space names like SHAK and EAT are nearly 40% off their annual peaks, not a typo. Discount plays like BURL and ROST feel heavy. And this is with the XLY just 2% from the most recent all-time highs. Perhaps the glaring discrepancies make it easier to spot the vigor in the group and where your capital should be deployed. Below is the chart of a prime candidate in LULU. I often get questions as to the huge gap up is too extended, in any name, and I will wait for a pullback. Markets confound the most and leaders have a way of not letting you in. In markets as in life you have to pay up for quality. Look at the moves in names like DDOG and UPST AFTER their gaps. Enough said.

Tech Still The Flavor: If one were to look back at the 11 major S&P sectors over the last one-month period, they would see not a lot of participation in the upside. In fact, just two are in the green for the time frame, energy, and consumer discretionary (crowding the bottom is just what bulls would want to see with defensive spaces of healthcare, staples, industrials, materials, and utilities). To me, this suggests that many of the growthier groups are well rested and ready for a strong year-end run. Was the swift downdraft of 5.7% from the intraday highs on 9/7 to the intraday lows on 7/20 enough? It seems like a long time ago but remember last week AAII bulls plunged. And Tuesday started the session higher and held firm even after a couple of somewhat sharp pullbacks, and that was the opposite of what occurred most of last week. Are the tides starting to change into the bulls favor again? The fact that the tech-heavy index did not roll over has to be considered impressive. Of course, we have FOMC tomorrow, so expect more volatility. This choppy year has been a tradable one, not so much for those trend followers. Trade accordingly.