Douglas Busch

Size Matters:   An interesting pair has put on a nascent sprint higher and is the small sample size a head fake or the beginning of something decisive? I am talking about the XBI and the IWM. Below is the daily chart of the XBI which seemingly is often at some kind of "inflection point" at the very round par number. Notice the almost perfect correlation here since April at various times with both the XBI and IWM trading in tandem. This is not out of the ordinary as firstly biotechs thrive in a decreasing interest rate scenario, as they are often unprofitable and depend on that type of environment to survive. Then when one looks at the sector composition of the small-cap index, healthcare and financials are the two largest (with industrials just behind) near 18%. So one would think to monitor the Russell 2000 for a clue as to where biotech may be headed. Currently, it is sporting a bull flag formation and a break above the 225 pivot carries a potential move to the round 250 number. Notice the apprehension however there and the dubious candlesticks at the level with a big reversal on 7/17 which was well above 225 intraday but could not CLOSE above it, and the spinning top last Friday and the bearish engulfing candle Monday.

Losing Its Shine? The most visible precious metal in Gold last week did something technically unsound and may have predicted this recent softness. Notice on the WEEKLY chart below how intraweek it poked its head above a bull flag formation, but was rebuffed at the very round 2500 number and CLOSED almost one hundred handles below the highs for the week. We know from FALSE moves come fast ones in the opposite direction and both silver and gold are trading off as of this writing at 7am London time. Sure anything can happen the rest of this week, but with all the uncertainty globally with Israel and the assassination attempt one would have thought the metal would have behaved better. The longer-term MONTHLY chart shows how apprehensive gold has been looking for a 4th straight month CLOSING well off intramonth highs following the breakout above the 2100 bullish ascending triangle in March, following back-to-back doji candles in January and February. The breakout on the MONTHLY chart carries a measured move to 2600, and one should remain constructive, as nothing goes up in a straight line. Look for the 2300-2350 area to hold.

Delivery Status: Some notable names in the industrial arena reported earnings yesterday and for many, it was simply business as usual. The most high-profile name was UPS and it "delivered" its 8th negative PRICE reaction in its last 10. It slumped 12% and is now 33% off its most recent 52-week highs and has now been making lower highs since February 2022. This looks like it wants to at least test the MONTHLY double-bottom breakout near 110 from July 2020, and it is now well below the big overall market rebound from last October. Both of its 50 and 200-day SMAs are sloping lower, the latter for one year now which truly shows the secular trend. It brings up the age-old question is this a function of poor management, or is it speaking of weakness in the overall economy? Or is it a function of AMZN simply imposing its will in the delivery services space? The same "issues" plaguing UPS do not seem to be affecting FDX, although it does feel a bit heavy just above the very round 300 number. This name is only 4% off its annual peak, excellent relative strength compared to UPS a third off its own. PCAR and AOS also crumbled Tuesday after REPORTING and falling to the tune of 10%, and each unraveling recent double-bottom breakouts.

Top Holding Lurking: We have spoke about the software carrying the baton in our 7/8 Technology Note as the semiconductors took a breather. Could they be ready for another leg higher? It has held up better as of late off just 4% from its most recent 52 week highs, while the SMH still lingers 9% from it own annual peak. A big part of that was last weeks action with the SMH slumping almost 10%, as the IGV lost less than 3%. This week so far heading into Tuesday the semis are snapping back adding 4% Monday as the IGV gained 1%. Below is the daily chart of ADBE and it shows this could be ready for the spotlight once again. One could interpret the pattern as a cup with handle but that comes in more clearly on the WEEKLY chart, as one can see here it fell more than 200 handles during a 10 of 17 week losing streak the weeks ending between 2/9-5/31. The add on after the entry through the daily bull flag would be a buy stop above the WEEKLY cup with handle trigger 580.65. Notice the volume during the 5 week win streak that added a combined 33%, and how it has tailed off the last 2 weeks as the handle took shape, just what you want to see if you are a bull. And it is doing so just above the 50 WEEK SMA too. 

Breakout Negated? The Nasdaq recorded its second worst WEEKLY loss of 2024 last week falling 3.6%, and ending a 6 week win streak in the process. WEEKLY doji candles are rare for the Nasdaq with just 5 since the beginning of 2023, with two significant ones at the very round 10000 number putting an end to a very sloppy 2022. They were an excellent indication of a low being put in and the tech heavy benchmark nearly doubled in PRICE to this months highs. The week ending 7/12 recorded another doji and there was another recently the week ending 6/22, which was the middle candle in a bullish three week tight breakout for the Nasdaq which makes this weeks action a bit more concerning. We know the best breakouts tend to work right away, and if they fall apart rapidly afterward it is a red flag. The week ending 7/5 jumped 3.5%, during a traditionally strong holiday-shortened week, so for the index to retreat so powerfully this week should keep investors cautious.