Douglas Busch

Discretionary Doldrums No More? We have been hesitant to author consumer discretionary notes recently, as it was not warranted with the group's overall weakness. That feels like it will be changing. This is the first time in a while we did back-to-back notes on the sector. The soft action was seen in large and small-cap former leaders with RVLV and CELH now each having been cut in half, and that is after Monday's big reversal. In the home improvement arena HD and LOW are still in correction mode, but their smaller-cap cousins in the niche space have seen divergent action with BECN holding strong down just 9% from recent highs, while FND flounders 30% from its annual peak. Below we see the ratio chart comparing the XLY to the XLP, a common way to gauge "risk-on" within the consumer space, and some would say in the overall market. It still has yet to be seen but with some healthy action among discretionary names, the XLY is showing some relative strength lower by .6% this week so far, while the XLP has dropped 1.5%. 

Discretionary Detonation: The consumer space via the XLY was the second-best major S&P sector out of 11 Monday, trailing just energy (both CLOSED near the UNCH mark). That action was a welcome sign for the bulls within as the space has been punished. Over the last one week period, the XLY was the worst of 11, and over the last one month and one year period, it is the second-worst behaved. Carnage within the arena over the last several months has been rampant. And the generals were executed. LULU, even after today's 25 point reversal off the very round 300 number still leaves its one-third off highs made on 11/16. CMG has declined 12 of the last 17 weeks, RH before Monday's U turn it was halved and DPZ completed a bearish 3 black crows formation falling 25% over the last 3 weeks. Which begs the question was Monday capitulation or just a common violent countertrend move within a bear market? All we can do as technicians are base our decisions upon the PRICE action in front of us. Below the bullish engulfing candle on the XRT and the intraday lows from today, albeit far away, can be played constructively to the long side.

O Canada: Is there something in the water in Canada? Many names north of the border have been acting well, particularly resource names. Perhaps then I should have asked if there is something in the ground up there. The EWC is acting much better than other international peers just 6% from recent 52-week highs, and half of that came courtesy Friday with the largest holding in SHOP dropping 14% and undercutting the very round 1000 number. This is an energy note and we have noted this past week the strength in the Canadian banking names that have been traditionally levered to oil, with RY recently higher 18 of 19 sessions after a move off the very round par number. But oil names themselves have been behaving well with CVE, CNQ, and SU. But below is a stock that has a bit of energy exposure, along with other interests in copper, zinc, and steel. The biggest reason why I added this in our weekend energy note was because of the PRICE action. Any move back toward the round 30 number is a good risk/reward bet in my opinion.

Foreign Versus Domestic Debate: In the steel space, there has been some disparity. More specifically we have seen strength in the international stocks. Names like TS which looks to be carving out a handle on its cup base here looks attractive. VALE is sneaking up on its 200 day SMA just above, and a pierce to the upside would be it's first in 5 months. Meanwhile, some of the big names here in the states are struggling. CLF comes to mind and it is lower by 15% this week so far, not a typo after the prior week slipped 5%. X has receded even more this week to the tune of 16%, and both are now a rapid 30% off their highs. X for the last 10 months has been trading in a range between the round 20-30 numbers. Below is the ratio chart contrasting the names of MT and NUE. On a YTD basis, there are some glaring differences with MT higher by 8% and NUE lower by 12%. NUE CLOSED below its 200 day SMA and could bounce off the very round par number here, but to me, I will not touch it. Hearing the incessant chatter of the potential EEM strength makes me nervous, but PRICE action is all that matters.

Semi Bellwether: The semiconductor group has its absolute leader at the moment in NVDA. It is the most recognizable name in the space and to show just how much tech has been weighing on the Nasdaq the stock has shed a quarter of its value as it has slipped nearly one hundred handles from 350 to 250 in 2 short months. The descent began after a bearish engulfing candle at 350 on 11/22. The stock is lower 7 of the last 8 weeks. AMD has held up a bit better but it is still in bear market mode off 22% from the most recent all-time highs. Below is the chart of another name that carries clout in the semiconductors in Broadcom. I still remember it as the symbol BRCM. It is acting a bit better than the two aforementioned names now 17% off its yearly peak made just a few weeks ago. So far in 2022, it has advanced just 3 sessions, and two of those were up .3 and .1%, not exuding much confidence. Consider Wednesday's intraday lows a line in the sand on a CLOSING basis.