Douglas Busch

Guilty Until Proven Innocent:  When you are trying to succeed be aware of the company you keep. Relating to the stock market that means putting your capital to work in names and areas that are proven and deserve it. The analogy I like to use is if you want to win the World Series you are going to put your all-stars on the field, not your triple AAA players. Looking at the healthcare space with a few weeks left in 2024, the XLV is in the cellar, the worst actor of the 11 major S&P sectors on a YTD basis, albeit still higher. All rallies within the space should be viewed as suspect until further notice. This will be a stock pickers game, as technicians always believe it is, but the odds may be stacked against them. As a rising tide tends to lift all boats, the opposite is true as well. But will investors start to take a look at this beaten-down group with a new regime in place? The first place to look is for individual names that demonstrated relative strength in 2024. And although these names are in the penalty box maybe they have paid their dues, but keep a tight leash (stop) as always as their trust must be earned. The daily chart below of the very diverse XLV paints a pessimistic picture. 

Mister Softee "Firming" Up:   That oxymoron could be a good omen for the software group that has flourished without the third-largest name on the planet. If this name can join the fray it could give the space some added fuel to the fire. Notice below on the ratio chart compared to the IGV it has been in a slow and steady downtrend for at least 6 months. There does seem to be a new-found affinity for mega caps with the META breakout that we spoke of this week, and AAPL now distancing itself from a 237 WEEKLY bull flag trigger that carries a measured move to 311. The MONTHLY MSFT chart sports a bull flag, but it feels like its dominant years may be in the rearview mirror. I would love to be proved wrong, but look at the very clean uptrend between 2016-22 that never recorded so much as a 3-month losing streak (and fell back-to-back months on just 3 occasions). The streak did end with consecutive doji candles in November-December 2021. On the MONTHLY RSI notice it is just a shadow of its former self which traded above 80 for a good chunk of 2017-21 and since its velocity of PRICE has slowed. That being said software peers would welcome MSFT with open arms in a stab to reclaim the good old glory days. 

Looking Beyond AMZN and TSLA:  With Amazon and Tesla trading right near 52-week highs, and deserve attention, there is plenty going on beneath the surface. As a whole, that statement can be visually seen in the PRICE action of the daily chart of the XRT below. The ETF now trades just 2% off its annual peak and has been smartly digesting the big 3-day win streak between 11/21-25 which rose by 1.7, 2.7, and 3.7% (with the last 2 sessions both coming in double average daily volume). The MONTHLY timeframe witnessed a big breakout in November above a long cup with handle and I believe this will hit the very round par number again in 2025, where the base commenced 3 years ago. Backing up the breadth story are good-looking charts in URBN breaking above a cup base trigger of 49, BKE nearly hitting its measured move above a bull flag breakout to 56, and GAP on the WEEKLY chart pushing toward the upper end of the range between the round 20-30 numbers. Consumers are clearly thinking better about the future and it is showing up in strong PRICE action. Trade accordingly.

METAiculous Set-up:  Of course, there is no such thing as a perfect set-up, but the daily chart below of META is looking somewhat pristine. Long-time readers of mine know my affinity with round number theory, and something is also coming into play at the very round 600 figure here. Many technicians believe the more times a line, or level, is touched the less important that support or resistance becomes there. I think the likelihood of a strong break above 600 for META, if that comes, will be significant. The first time hitting the level it backed off with a dark cloud cover candle on 10/7, then on 10/14 a bearish shooting star, a counterattack on 10/30, and yet another shooting star on 11/12. My belief is the stock is becoming more confident in the area, especially after retesting the prior cup with handle breakout. Talking about round number theory the MONTHLY chart shows how powerful the run has been since the push-off par 2 years ago. Notice it spending almost all of 2024 above the overbought 70 RSI number, demonstrating overbought does not mean overdone.

Semiconductor Reversal? The semiconductor space has been a laggard within tech and last week was a big contributor to the overall group's weakness against the market (the SMH and IGV were down 1% last week with the S&P 500 up by the same amount). The XLK was flat and only bested energy finishing 10th of 11 in the major S&P sector ranking last week. In fact, over the last month, it is essentially flat as well. Is the sector resting before a big December? Getting back to the semis in November the SMH rose 3%, compared to a historically very powerful 13.3% over the last 4 years. Will it make up for lost ground into year-end? Of course, no one knows but the daily chart needs to distance itself quickly from the rising 200-day SMA next week. It has been lingering near the line for the last 10 sessions and that should give investors some pause. I think one can start long here and add to on strength. The MONTHLY chart shows very taut trade, a hallmark bullish trait, with the last 5 months CLOSING with a 240 handle. But bears will point out the fatiguing candles with a doji in August followed by three consecutive spinning top candles which suggest some possible back and filling toward the rising 50-MONTH SMA last touched two years ago with a bullish morning star (circled). There are some green shoots with some individual names performing well including SMTC, which next week has the chance to complete a bull flag. A break above 67 would carry a measured move to the round 80 number.