Douglas Busch

Roadblock Weakening? Biotech has been a tough place to be since the 2021 top. The MONTHLY chart below shows the visual pain investors have had to endure following the bearish shooting star candle in February of that year. The ETF declined 13 of the next 17 months hitting a peak near 175 to a low of 62. From there the fund vacillated roughly between the round 70-90 numbers before breaking above 90 this February and that stubborn line of resistance now looks like support as it was firmly retested and held in May and July. We know that the vast majority of instruments that trade through 90 will reach par and beyond and that is where the ETF has been stuck. Notice the 50 MONTH SMA resides there and the XBI was above that line intramonth in February, March, and July this year but all three were unable to CLOSE above it. It has now formed a bull flag and it will be interesting to see where this finishes August on Friday. The daily chart this time around, for the time being, has held up better than the early and late July examples. That's a good start. Let's see where we finish to end the week and August.

All Eyes on Us: The semiconductors will be in full focus as investors have been anxious about the direction the group will navigate following NVDA's earnings announcement Wednesday after the CLOSE. The name still trades 9% off its most recent 52-week highs but has sported a robust run off the very round 90 number on 8/5. It has carved out a handle on a double bottom pattern which can also be interpreted as a bull flag. Will a well-received number already been PRICED into perfection? Below is the chart of the SOXX and NVDA is now the second largest holding at just under 10% of the fund and behind AVGO. Its WEEKLY chart has something for both bulls and bears, and bulls would state the completion of the bullish morning star pattern the week ending 8/16 which jumped more than 9%, and the taut trade that has followed the last couple of weeks. Bears would claim that trade has been very volatile and choppy as of late, classic topping behavior following the 70-point decline from the bearish WEEKLY shooting star candle the week ending 7/12 (notice negative divergence too with lower RSI highs in February and July as PRICE made a higher high).

Industrial Pause? Monday was a risk-off session as energy, staples, and utilities led. Tech took a back seat but the industrials are a group we have been monitoring for their strength for some time. The daily chart below of the XLI trades a bit wide and loose, hallmark bearish traits, but if one looks under the cover there are some individual names that are thriving. CARR, for example, is now above a double bottom trigger of 69.59 taken out on 8/21 and for the time being is ignoring last Thursday's doji candle. MMM which trades in an opposite manner of CARR, very taut, is now above a bull flag pivot of its own which began at the very round par number and the move above 125 suggests a 150 target is plausible into year-end. To keep a balanced approach the airlines just can not seem to get off the ground, pun intended, and the JETS have been week since the MONTHLY bearish evening star completed in August 2023 (notice doji candle in July). Unless it can CLOSE above 19.06 by Friday it will have recorded its fifth straight MONTHLY decline. 

Consumer Group Strength Broadening: The XRT, the more diverse consumer discretionary ETF, is signaling good things for the group. Below is the MONTHLY chart which shows this could be ready for a beach ball held underwater breakout. It would have to climb above the round 80 figure first but if that occurs look for this fund to target the very round par number by the end of 2024. It shied away from that level in late 2021, which was the start of an ugly 8-month losing stream that found a floor in the 55 area which it held during 2022 and 2023. When compared to the top-heavy XLY on a ratio chart the XRT recorded a nice last 3 weeks of July and is now bull flagging for a possible continuation move higher. This to me speaks volumes as money may have been rotated out of the AMZN's and TSLA's and into the smaller names as the group's ascent spreads its tentacles wide (not saying TSLA and AMZN will not power higher from here). Its daily chart could hit a roadblock as it travels toward the 79-80 area for the sixth time in 6 months, or is that too obvious to occur again? The fund did complete the bullish island reversal on 8/15 (after the gap down on 8/2) and this coiling action could be ready for a charge higher.