Douglas Busch

Know Your Holdings:  With the plethora of ETFs that have been born in recent years, it pays to take a look under the hood. Analyzing the semis there are two heavily watched in the SMH and the SOXX. The former has been acting better with the top-heavy fund having NVDA the top component at nearly 20%, and one can see how that hurt the SOXX on the MONTHLY ratio chart below. The more "defensive", or "equal weight" SOXX, Nvidia is not even the top holding. Peering at the SOXX MONTHLY chart though shows it has now successfully retested the cup with handle breakout here from December 2023, and it was just above the rising 50 MONTH SMA. Although the semis have lagged software the last 6 months as seen here, if technology is going to return to a firm uptrend it will need their inclusion. Here is the longer-term MONTHLY ratio chart showing their importance, and it is holding a 5-year plus uptrend. Getting back to the SOXX if investors will be on the conservative side they may have an affinity for the SOXX which includes TXN as its top holding at 8%. PRICE is back to a familiar area of former resistance and bulls will look for that former ceiling to become a floor. And the 3% dividend yield doesn't hurt.

Dojis in the Driveway: The homebuilders have been a big contributor to the success of the discretionary space as seen here on the MONTHLY ratio chart from the start of 2021 to late 2024. A bearish head and shoulders may let another subsector, perhaps the automobiles with TSLA, take the baton but they are a key group to focus on. They can be influenced by the direction of interest rates, most notably the 10-year yield, which is now sporting a bearish head and shoulders formation, and a break below 4.1 carries a measured move to 3.4% which will not only put a likely bid under the WEEKLY chart of the XHB below, but the overall market as well. The dojis in the driveway reference should have investors in the homebuilding space ready for an entry above the very round par number which would set up an add-on buy point above a double-bottom trigger of 113.20. Among the large-cap names in the space, PHM is one to watch. It recorded positive RSI divergence in December and February and is holding the very round par number well in a bear flag formation. If it can break ABOVE 105 look out to the upside above. 

Energy Bid: Energy continues to trade bullishly and the daily chart of the XLE shows how it has been resilient. For the last one year it has traded roughly between the lows 80s and mid 90s and we can see once again that it has penetrated the 90 figure in mid March for the fifth time in the last 6 months. Eventually this is going to make contact with the very round par number. On the WEEKLY ratio chart notice how the XLE is acing well POST break above the downtrend between Q4 '23 and the end of 2024. Above the 95.92 cup base trigger this would carry a measured move to 111. In our last energy note we spoke of the admiration we had for the CVX MONTHLY chart and March recorded a bullish hammer and is now within a couple percent of a cup base trigger of 171.82 (notice the nice digestion in the 2 1/2 year pattern following the big move from 2020 to late 2022. Top holding XOM is now approaching a cup base trigger of 122.22 and this would be a solid 1-2 punch for the whole group. Over the last one month XOM is outperforming up 7% as CVX has added 5%. COP, the 3rd largest component in the fund, is pressing up against the 200 day SMA to the upside and bulls want to see a firm break above unlike the stalling it did there, and the eventual failure last November. Its 200 day SMA is starting to flatline. The energy move may be gaining steam.

Modern Casual Diner Safe Harbors? Since roughly election day the has been a trio of restaurants that have provided some more "protection" than McDonald's, the previously obvious choice. The chart below shows the trifecta of EAT, DRI, and YUM providing more comfort over the last 100 days. Yum Brands has a nice look to it and is well above its 50-day and 200-day SMAs but with a wobbly overall environment would look for this to potentially form a double bottom with a low in the 149-150 area, and notice how it has outperformed cousin YUMC in China which speaks volumes. DRI will be interesting to see if the very round 200 number, resistance 4 prior times since February will turn into support after the 4% gap up Monday. EAT is the weakest of the three, down 23% from its most recent 52 week highs while DRI and YUM are 3 and 5% off their annual peaks, but could be potentially setting up a future double bottom base if it can climb above its 50 day SMA in the near term. Treat this more as a monitoring exercise as opposed to putting on new positions in this fragile market. Names that weather the storm best usually prosper the most when the group cathces its footing. 

Material Witness: The materials sector overall has been a decent performer up 3.5% YTD making it the fourth-best major S&P sector performer. The daily chart below shows it has been making some technical amends following the break ABOVE a bear flag. It recently recorded a bullish island reversal which gives good risk reward on the long side against the recent lows just above 84. Its WEEKLY chart shows the doji candle last week which is adept at signaling PRICE changes from the prevailing direction and it found a bounce near the lows of the big week ending 1/17 gain of 6%, its best move since the week ending 11/11/22 (some distribution has been popping up in February and March). Looking at some of the top holdings LIN at 18% is approaching a cup with handle pivot of 470.76 and recorded a bullish golden cross although there has been some negative RSI divergence. The second largest component in SHW may have registered a double bottom at 327 with a doji on 1/10. FCX, another top 10 holding, put up a bearish engulfing candle Wednesday at the 200-day SMA, and Thursday completed a bearish island reversal with the gap down. This could be a temporary ceiling for the name.