Douglas Busch

Banks Depositing Gains: Since 2012 when the XLF was the best acting major S&P sector, its behavior has been a bit more mediocre. It put up a 3rd best finish in 2016, but other than that the advances were lukewarm at best. That has all changed this year as the XLF is the second best major S&P sector out of 11 on a one week, one month, three month, six month and YTD timeframes. It has little chance of catching technology this year as the two are separated by 13 percentage points. The XLF is higher 8 of the last 9 weeks, and is tacking on another 1.5% this week with one session left. It is more than likely to record its third WEEKLY CLOSE above the round 30 number tomorrow, and it has demonstrated solid follow through after a break above a very taut 3 week period, as the weeks ending 11/8-22 all CLOSED within just .17 of each other. Below we take a longer look at the XLF on a MONTHLY chart, and this just broke above a cup base, which have been very accurate at forecasting firm gains going forward. Another 50% run is easily in the cards over the next 3 years if history rhymes.

Focus Your Concentration Here: One must always look at time frames when it comes to investing, and below is the chart of all the major S&P sectors, and how they performed on a 3 month look back period. Healthcare gets the top nod, besting both technology and financials, but if one where to look at the YTD scenarios one would see healthcare is near the bottom of the pack, just 10th of the 11 major groups (although still higher by a very respectable 17%). As investors, one has to honor where the money is flowing and that is where many ideas on watchlists should be popping up. With unabated strength surely comes the prudent pause, and we can be seeing it as the XBI is looking at its first potential WEEKLY loss in the last 11 weeks. The XLV is not surprisingly finding resistance near the very round par number this month, after a nice run following the cup base breakout above a 94.52 pivot on 10/30. These ETFs are in uptrends and one should look to enter on any tactical weakness 3-4% below current levels. 

Killing Me Softly: We recently brought up the topic regarding the abundance of healthcare IPOs, and the fact that it did not seem to be harming the sector at all. Below we take a look at a few of the software names that came public earlier this year. Notice there were four in the space of less than 2 months this summer. For the most part many have done well, of course it matters where one purchased them, but in 2019 most names that came public in the computer software arena have acted decent (12 of the 16 are higher than where they first traded, and 4 are lower including WORK DAO LINX and SCPL). Stocks like ZM are essentially right back to where it starting trading at the round 60 number. CRWD now trades 53% off most recent 52 week highs, not a typo. Of course no one can say conclusively if it is weighing on the space overall, as the IGV is lower by .7% this week so far, and if it declines would be the first time it fell in consecutive weeks since early August. The quick failure above the 230.97 cup base pivot looms large. Technology needs this group to step up.

Amazon Weighing: Discretionary, one of just three major S&P sectors to rise Monday, acted "well" on a semi soft tape today, with the XLY and defensive spaces of staples and real estate up fractionally. But if one was to look under the hood, the underlying strength came from the more diversified XRT. The elephant in the room in AMZN has been weighing down the XLY, as it has slipped 6 of the last 7 days. There has been a shift in favor of the XRT as seen on the ratio chart below against the XLY in recent months. In fact on a 3 month look back period the XLY is actually LOWER by 1.1%, while the XRT has GAINED 6%, nice divergence for the latter. It formed a nice double bottom at the 37-38 level last December and this August. As long as AMZN's chart looks melancholy, favor the smaller, more nimble David's over the Goliaths.

New Issue Mania: An influx of IPOs may not be the bearish precursor everyone thinks it is, as new issues rush to flood a hot market. Below is a snapshot of 7 recent new names that came public during a 2 week period recently in the healthcare group, as 5 of the 7 shown emanate there. Some of these sport decent charts as well, unusual as it takes time for a new chart to form a viable base. PGNY, has risen a perfect 7 for its first 7 weeks trading, and today pierced its head above a bull flag pivot of 29. Others like OYST, felt the power of round number theory as it was stopped precisely at the 20 figure Thursday, and today slumped 8%. At the other end of the spectrum is the action of some of the most mature names in the arena. AMGN looks poised to continue a robust move as it sports a nice looking bull flag pattern, and a break above 236 carries a measured move of 22 handles. BIIB is having a scuffle with the round 300 number, as 5 of the last 6 weeks were above intraweek, but only this one CLOSED fractionally above the figure, and the last 3 all CLOSED very taut, all within just 1.16 of each other. Very often explosive moves follow such tight consolidation.