Douglas Busch

Staples In The Portfolio Diet: "Risk off" has been making its presence felt short term. Will it last awhile? No one knows for sure, but PRICE action is certainly making a statement to be careful. There is no reason to try and be a hero here, as the market has made a substantial move in recent years, and some healthy digestion could be a good thing going forward. We wrote about "risk off" in healthcare yesterday, and today we try and convey how it looks in the consumer space. The most traditional way to look at that relationship within consumer is to look at the staples versus discretionary. For the first time in 6 months, the former is looking better than the latter. Breakouts are failing pretty quickly, and that is a red flag. Perhaps that is best exemplified with DKNG, which rocketed above a bullish ascending triangle on Monday, and has since acted very weakly. It is about 15% off intraweek highs. The ratio chart below is working in the staples favor, even with top components looking mortally wounded including PG WMT and COST. Many investors are going to be happy after Fridays CLOSE for some thinking after this weeks action. They may conclude it is time to exit, making the drawdown from this week accelerate. 

Semi Standout: As the semiconductor group dances ever so gingerly upon its rising 50 day SMA, a lot is going on under the surface. Below one can see the softness in AMD and NVDA, both of which are down YTD. Each are approaching their 200 day SMAs, AMD is closer, but those lines need to hold if tested, as we know the old adage, "nothing good happens below the 200 day." This is again a time to be small, with a decent cash position, and watch names that are acting well during this tech fragility. One such candidate is Micron. On a relative basis MU is higher by nearly 20% YTD, while the last 2 aging generals are in the red. The stock is higher 17 of the last 21 weeks, and trade has been very taut overall, a hallmark bullish trait. If this market selloff accelerates in the coming days/weeks and this name trades into the low 80s, I think that represents good risk/reward. 

Value Versus Growth: There seems to be incessant chatter about this debate, and over the last decade value was supposed to outshine growth, yet it never did on a consistent basis. It would for maybe a couple months, but the relationship would always go back in favor of growth. That may be changing, and this time "feels different". I know famous last words in investing. I just take into account PRICE action as my guide. Below on the bottom of the XLV chart, a ratio chart comparing the more mundane, mature healthcare names, look like they may be ready to bask in the sunshine against their more volatile biotech names. Keep in mind at the end of bull markets, and I am NOT calling for one, the value plays will start to outperform. The XLV over the last one month period is lower by 2%, while the XBI is down 10%. It is a short term view to take, but the XLV is also down 4% from most recent 52 week highs, while the XBI is 17% off its annual peak made just 4 weeks ago. Perhaps it is a signal to overweight "value" healthcare names over "growth", or just have a larger cash position to take advantage of when a bullish catalyst (candlestick pattern) happens to take advantage of an oversold biotech space. It could be months or in a few sessions. 

Sin City: When a group of stocks rises in unison, some advance more powerfully than others. This is how alpha is created by superior stock pickers. A technician leaves the reasoning behind it to others to look for possible fundamental reasons. But the bottom line if a particular name is left lagging, there is usually a reason for it, and it is often found out later on. Let us take a look at the gaming plays today. On a YTD basis CZR MGM and WYNN are higher between 17-26%, while LVS is still grappling with a single digit return. Each one of their charts has a bullish slant to it, and some investors believe in the catch up theory. I do not subscribe to it, as a salty investor once said, "if you are trying to win a pennant, put your best players (stock leaders) on the field instead of the back up (laggards)". PRICE action dictates my trading, and LVS might be trying to make a stand here. The obvious critical level is the round 60 number, the scene of a double bottom breakout. The area was pesky resistance last November through the beginning of 2021. It most likely is now support.