Douglas Busch

Leader Flexes Its Muscles: Like in war as in markets, participants will often take their cues from the generals. Thursday the semiconductor boss made a stand. Will peers get the bullish notice? Some things occurred that gave us some heads up that a correction was due for the chief, as in it did not make a higher high with the SMH on 7/11 and it did just come off a 10:1 split on 6/10. Often splits will begin a period of softness, as the discretionary dignitary CMG did after a 50:1 split on 6/26 (although it did record a spinning top at the upward-sloping 200-day SMA which suggests selling pressure may be abating. The WEEKLY chart shows NVDA off 7.5% heading into Friday and if that holds would be the worst return in 2024 besides the week ending which slumped 13.5%, but notice how the strong rebound began right away the very next week. There have been some dubious WEEKLY candles with a doji candle and shooting star during the weeks ending 6/28 and 7/12 and this one is carving out an engulfing candle but that could change Friday. The overall group will be influenced by this name. Friday feels like a very important session.

New Beginnings? Biotech has made a robust move, and one can question the motives until the cows come home. Is it the emergence of a likely Trump victory (spare me the politics) or the thought of higher interest rates dissipating? I judge my actions solely on how PRICE is behaving and one can not deny the power the XBI has displayed. Below is the daily chart and it is not shying away here from the very round par number, at least not yet, like it did earlier in 2024. On the WEEKLY chart, 100 played a critical role as well with a sharp rejection there, with the second week of March recording a bearish dark cloud cover candle at the 200 WEEK SMA. This Friday will be vying for its first CLOSE above that secular line too. The MONTHLY timeframe looks excellent and remember we have been speaking about the break ABOVE the bearish head and shoulders formation and we know from FALSE moves come fast ones in the opposite direction. Now it has carved out a bull flag pattern with the neckline right at the 50 MONTH SMA and a break above 103.50 by 7/31 would carry a measured move to 144.

Equipment Check:   There is a "rotation" going into some value-related sectors and energy is one of the beneficiaries. But if we "drill" a little deeper into the group, pun intended, we will see the equipment names (picks and shovels) are acting better than the ones in the exploration space. Over the last one month period the OIH is up by 12%, while the XOP has added 4%. Below is the daily chart of the OIH which is nearing a double-bottom pivot and has not recorded back-to-back daily losses in the last 4 weeks. The MONTLHY chart I feel has room to the 350 area by the end of Q3 where it may stall near the consecutive doji candles from August-September 2023 and the bearish dark cloud cover from this April. The chart here comparing the OIH and XOP shows the former overtaking the XOP for the first time since the start of April (they traded with a very strong correlation in February and March). Seasonality will be a tough sell, and perhaps investors were already positioned for that with a weak April, May, and June which have been strong over the last 4 years. Notice the extremely robust Q4 average gains of a combined 22%, although with big volatility as October and November which advance on average by 10 and 6.6% only CLOSED higher 50% of the time (2 of the last 4 years).

Complexion Change? Will Thursday's action prove to be something sinister going forward for the major averages? My take is something feels different this time around, famous last words. My belief is that the Nasdaq will hit the very round 20000 number by the end of 2024, but I think it will take a detour lower in the near term. If one is to look at the seasonality during the last several years for the Nasdaq July has averaged a gain of 5.6%, and at the intraday highs last week it was higher by 5.3%. And looking at the next 3 months between August-October advances have been muted or none at all with September seeing a loss of nearly 7% dating back to 2020. The WEEKLY chart should give one cause for concern with the doji candle, although that same candle the week ending 6/21 did not bring about the fatigue or possible trend change that they often forewarn. Bulls will maintain the break above the 3-week tight pattern (weeks ending 6/14-28 all CLOSED within just 44 handles of each other) the week ending 7/5 that added 3.5% (holiday-shortened weeks historically tend to be positive) has legs and I am still constructive on markets but think a tactical drawdown of 3-5% is a possibility before a late year resumption of the rally.

Market Time Out? With the domestic US markets sneezing yesterday, will the international ones catch a cold? The S&P 500 recorded a bearish engulfing candle Thursday although the benchmark has for the most part shrugged off these examples in 2024 in rapid fashion. Will that continue? An interesting development however was the strength of the small caps as the Russell 2000 (IWM broke above a 207.37 double bottom pivot but will the fourth time be the charm breaking above the resistant 210 level) surged nearly 4% as portfolios that were very overweight the mega caps and short the smaller names may be beginning to unwind. Will this potential outflow from the huge domestic names also reveal a rotation into some other international areas? One area of interest is the chart below of the EEM which is acting well and the longer-term WEEKLY has some appeal too. Notice the break above a bullish ascending triangle pivot of 41 in a base more than 2 years long and then the successful retest confirming its legitimacy 2 months ago. The breakout carries a measured move to the very round 50 number.