Douglas Busch

Orderly Selloff? As silly as that sounds it still does not feel like we have seen the white of the eyes of the bulls even with the Nasdaq now 14% off its most recent 52-week highs, and falling 4% Monday. Notice here that the Nasdaq WEEKLY chart Monday undercut its 50 WEEK SMA, an area that was a launching pad after some decent-sized pullbacks in Q4 '23 and Q3 '24. There are still 4 more sessions this week for it to recapture that line, but what would be the catalyst? Perhaps the catalyst is that absolutely no one is talking about a market rally whatsoever, not even a dead cat bounce. I have been fielding a lot of questions from folks I have not heard from in a long time, which says we are likely getting close, but the MONTHLY chart below of Nasdaq 100 stocks above their 200-day SMA is still in the upper 40s. My response to these inquiries is that let that number come into the teens, a number it has hit 5 times over the last decade. The VIX now seems to be comfortable above the very round 20 number, a former pesky level to get above. It is entirely plausible that it may set up a new range between 20-30 like it did in 2022 and notice the pervasive downtrend on the Nasdaq throughout that time period. Again be very nimble in this environment. In "liquidation" phases, technicals do not always matter. Of course, one has to be open-minded to anything happening, but bulls sure need to step up soon. 

"Energetic" Run Ahead?  Energy has been stuck in the middle of the YTD sector rankings as we head toward the end of Q1 having advanced 2% thus far (interesting is the bifurcation of "value versus growth" with healthcare and staples higher by almost the exact opposite that technology and discretionary are). Below is the daily chart of the XLE, and this week has put up a fight and if the lows hold going forward I think Q2 could be a solid one. Friday's advance of 1.7% was adequate follow-through after the doji and engulfing candle and sets up well going into next week. Looking at the two behemoths that make up 40% of the fund in CVX and XOM, the former is still in control and its daily chart is sporting a bullish ascending triangle and a break above a rough 160 pivot could see a measured move to 180. The third largest holding in the ETF is COP and on the WEEKLY chart perhaps this laggard (in secular decline since the start of 2024 as seen on the ratio chart) is now buyable with a double bottom made in the 86-87 area from 2 years ago.

European Appetite: The continent is often thought of for its fine cuisine, but shareholders seem to have a strong appetite for their financial sector. The WEEKLY chart of the EUFN below gives a visual representation of this. Friday the ETF will likely extend its win streak to 9 as it is higher by 4% thus far. It is enjoying a very powerful start to 2025 up by 23% already it carries a nice dividend yield of 4.4%. Compare that with the XLF higher by 2% YTD, and pays a paltry yield of 1.4%. The ratio chart contrasting the two here shows the relationship favoring Europe began right around Thanksgiving and investor's ongoing theme or rotation from domestic to international seems to be gaining steam. This week alone is displaying some big bifurcation as the XLF has fallen 5.4% heading into Friday and is on pace for recording an ugly bearish engulfing candle. Volume is heavy with this week already showing the third strongest WEEKLY volume since the beginning of last August with still one more session and with jobs number coming Friday morning. Notice on the WEEKLY ratio chart compared to the S&P 500 it has been helping keep the benchmark afloat. Bulls do not want to see this sector fade. The daily chart of top holding BRK/B in the XLF registered a bearish dark cloud cover candle on 3/3 and it is now quickly and Thursday with its second straight spinning op candle precisely retested the former breakout pivot of 491.77. The group can not afford a failed breakdown from the Oracle of Omaha. 

Software to the Rescue?   The software space has been holding up better than the semiconductor space so if technology is going to get going it may need the IGV to step up. Give the ETF credit for CLOSING near highs for the session Wednesday and gradually distancing itself from its 200-day SMA. This fund is now 12% off its most recent 52-week highs, showing relative "strength" with the SMH 19% off its annual peak. It has been affected by some high-profile earnings misses with CRWD falling 6% Wednesday but did end up recording a bullish hammer candle. TTD, which cratered 33% on 2/13, is now more than 50% off its peak made in early December and since then has declined 11 of the last 13 weeks. Lesser known plays, but that were generals prior, are PEGA which gapped down 20% on 2/13 after an ill-received release have been left for dead. Its WEEKLY chart here suggests bottoming after a doji candle last week at the 50 WEEK SMA (notice the doji called the top the week ending 2/7) and heading into Thursday this week a bullish hammer is forming. APP jumped 24% on 2/13 but has since fallen more than 200 handles and sports a bear flag at the very round 300 number. Wednesday's action could be interpreted as a bullish morning star, it just can not take out this week's lows.

Relationship Issues: Within the very diverse healthcare group comparisons to subsectors could give investors good places to over and underweight. The ratio chart below comparing the XBI to the IBB shows a risk-off flavor as the more dynamic "youthful" names underperform their larger cousins for the last 3 months. This speaks to a defensive posture as market participants look for maturity and dividends from individual names. While both of these are in downtrends the IBB is "just" 11% off its most recent 52-week highs while the XBI is 18% off its annual peak. Looking at the daily chart of the XBI notice it is back again to the lower part of a channel and candle patterns have been helpful in identifying smart purchases. A bullish morning star on 12/20, a bullish harami on 1/15, and an engulfing on 2/12 saw quick but temporary advances. Currently, the engulfing candle last Friday was negated and today's piercing line could see a sprint higher but it would likely be short-lived. The PPH also is touting a conservative approach as it has outshined biotech since the election, the opposite of what many believed would occur, and has acted brilliantly since taking out a bullish inverse head and shoulders formation. The IHI, representing medical equipment, was unable to break above a bull flag we spoke about last week, but a move into the 62 area would be the initial touch of a rising 50-day SMA following a cup base breakout, often a solid entry point.