Douglas Busch

Services Skyrocket: Last week in our energy note we drew up a ratio chart of the XOP against the OIH, and we pondered if it was a double top for the exploration names against the equipment. If this week was any indication, that double top will be long lasting and equipment should outperform. This is not a knock on the XOP. This is just an under-owned overall energy space, and both are on fire. Remember ratio charts compare one instrument to another and gives an assessment of which should be overweighted against the other. It does not mean one is weak, in fact, both are very deserving of your capital. This past week the OIH screamed higher by 19%, its best WEEKLY gain since the week ending 6/5/20 (the next 3 weeks gave that entire move back). The XOP was no slouch either jumping 8%. The good old days of SLB HAL and NOV are back. The latter name has jumped 40% since 4/21. Any pullback in these names should be taken advantage of.

Consumer Apprehension: When it comes to the 2 retail ETFs there is really no comparison. The XRT or more "equal weight" fund with no single holding of more than 1.3% has advanced 46% YTD and by 158% over the last one-year period. Compare that to the top-heavy XLY, where nearly HALF of the ETF is made of from its top 3 holdings in AMZN TSLA and HD. Of course, Amazon reported earnings, and was up about 4% after hours last Thursday, before CLOSING Friday in the red, with a bearish engulfing candle at all-time highs. Last week's highs to lows Thursday morning was a range of 300 handles. TSLA is now 26% off most recent 52 week highs, and HD has been acting stellar breaking above a bull flag. The softness of AMZN and TSLA is showing in the returns, although likable, up 9% YTD and 55% over the last one-year period, it pales in comparison to the XRT. If one is trading the ETFs I prefer the XRT as it is just below a bullish ascending triangle pivot, while the XLY has the look of a bull flag, that aligned with the round 180 number, which is getting long in the tooth.

Industrial Influence: The industrial group, via the XLI, is now the 4th best major S&P sector performer on a YTD basis. The ETF is higher by more than 17% in 2021, and it has been helped primarily by heavy construction with the anticipation of an infrastructure bill, which truth be told has fallen on deaf ears. For the week the fund has advanced by nearly 2%, and if it ends the week on a positive note it will register a 7-week winning streak. The prior 6 weeks all CLOSED at the top of their WEEKLY ranges, and in fact, all WEEKLY gainers since the beginning of last December have done so as well. Some names within the group that look like they are ready to accelerate higher are GVA, and Wednesdays break above a bullish ascending triangle pivot of 41 carries a measured move to 48. ACM is edging above a bull flag pivot of 68, which would carries a measured move to 76. CRH, an Irish materials name is flirting with the very round 50 number here. The group seems to be firing on all cylinders at the moment.

Tech Wreck On Deck? Technology is no doubt the focus of all investors. Semiconductors and software garner most of the attention, and they are feeling the pain at the moment. Remember every company is either a technology company in some capacity, is trying to become one, or does not know the benefits of doing so. Since 2007 on the chart below, surprisingly it was never the best major S&P sector performer in back-to-back years until 2019-20. Information technology must be given credit for only one down year in the last 14, in 2008 when it plummeted more than 43%. Taking a closer look curiously it either participated in a big way (four times information technology was the best major S&P sector actor on a YTD basis since 2007) or never finished second or third best. The year of 2021 seems to be doing just that, with an even less than mediocre performance up just 5% YTD, besting just the consumer staples group. Prudent pause for an extended period of time, perhaps into year-end, looks like best-case scenario. 

"No Bull Market Without The Banks" Bull$#@!? The old adage is in my opinion not relevant anymore. Sure we would like to see their inclusion in any market rally, but it is not necessary. Going back some years, the banks were a big reason for the selloff, as the S&P 500 rose just 3.5% in 2007 and fell 38.5% in 2008, the financial group were the worst major S&P sector performers down 18.6 and 55.3% respectively. But just like anything else once something becomes widely known, its edge disappears. A good example would be last year when in 2020 the S&P 500 rose 16.3%, but the XLK fell 1.7%. This year so far give the XLF credit as it is the second-best major S&P sector actor, advancing 24%. Is it a signal that market participants believe rates are going higher? Of course, no one knows for sure, the only evidence I follow is PRICE action. The group will be helped further along with a break above a 356.95 cup base pivot for GS. Remember that will aid not only the finnies, but the DOW too as the index is price-weighted, and Goldman is the highest PRICE name in the benchmark.