Douglas Busch

Contrasting Narratives: As the XLY has jumped 6.5% over the last one-month period, the XRT has struggled down 3%. The latter is a more diverse and "equally weighted" ETF which may speak to some broader weakness in the consumer discretionary space. AMZN and TSLA has risen like rockets and they are the two top heavyweights in the XLY representing more than 40% of the fund. Amazon we spoke about here with its big potential (in our 6/21 Consumer Note) of breaking above a long MONTHLY cup base pattern. It has since done so and its updated daily chart sports a bull flag formation with a trigger right at the very round 200 number and a break above would carry a measured move to 220. TSLA last week sprinted upward by 27% in its best WEEKLY volume since last November and we spoke about this name on 6/28 in our Tech Note as it set up a bullish inverse head and shoulders pattern. It is now approaching an add-on WEEKLY double bottom trigger of 265.23. The chart below shows the different paths the XLY and XRT have embarked on as of late and notice the RSI for the XLY above the overbought 70 number. This is NOT a sell signal as instruments can remain overbought for long periods. If has just reached that lofty altitude, and remember there is nothing more bullish than an overbought situation that remains that way. 

Software Took the Baton: Have the software names done their job giving the semiconductors a chance for a breather before their next leg up, or can they both enjoy an upward trajectory together? I think the latter, but one can see here just how quickly the IGV has caught up to the SMH here. The daily chart of the IGV below shows the nice action POST breakout from a double bottom base, and we know leading instruments tend to do just that, and not pause at the scene of the crime. Check. If we were to look at some of the top ten holdings in the ETF it suggests it may need a prudent pause. The fifth largest component in INTU could find some obstacles here after a quick 100-handle run that began with a bullish piercing line and hammer candle on 5/31 and 6/5 respectively. It has now filled in the upside gap from the 5/23 session (notice the doji the session before that predicted possible fatigue). On the bright side, CRWD is bull flagging and a break above 395 would carry a measured move to 485. And I never really put much thought into the laggards but what if former leaders like AKAM SNOW or MDB start to resurrect themselves?

Biotech Coiling: Biotech via the XBI is now 12% off its most recent 52-week highs and this week headed into Friday is off 2%. There is something for both bulls and bears and the former could state that the ETF has advanced 8 of the last 10 weeks, but the negatives would be the fund CLOSING in the lower half of the WEEKLY range 6 of the last 8 weeks. We have spoken about the importance on the WEEKLY chart of the very round 90 number, as the level was former stern resistance, and it could be turning into decent support here if Friday can finish above it. Give it credit for the nice run since the bullish morning-star pattern since the week ending 5/3 which jumped 8%. Follow-through has not been that formidable so the jury is still out but one can keep a positive outlook as long as the XBI can CLOSE above 88. The MONTHLY chart shows June was the tautest range in one year and that is generally considered a good thing, and again the importance of the very round 90 number being a brick wall between 2022 and the end of 2023. The top 3 holdings in SRPT UTHR and ALNY have been doing their part with recent surges. The 8th largest holding in BIIB could be ready to make a contribution if it can break above the bull flag pivot of 235 which would carry a measured move to 280.

Know Your Holdings: The semiconductors have been a big reason for the overall strength of the technology space and July as we mentioned recently still shows strength over the last 4 years, but notice August and September are the only back-to-back months to produce negative returns with all of the September's dating back to 2020 CLOSING lower than where they started with an average loss of 7%. Now looking at the composition of the two largest semi ETF's, the SMH and the SOXX the former carries an NVDA weighting of 20%, more than double that of the SOXX at just below 9%. If one is a big NVDA bull it makes complete sense to overweight the SMH against the SOXX. Looking at the stats the SMH has advanced 49% YTD and 71% over the last one-year period compared to the SOXX higher by 28% and 46% over the same timeframe. The chart below of the SMH, on the lower panel of the graph demonstrates this. The back-to-back dojis recorded by the SMH are interesting and remember they often speak to at least fatigue, or a change in the prevailing trend, so investors should be ready to raise cash in my opinion, especially after the big reversal on 6/20 with the bearish engulfing candle. 

Do or Die: We spoke about the uncanny ability for energy, via the XLE, to either CLOSE out a year as the best or worst major S&P sector performer out of 11 in our last note on the group here and as we enter the second half of 2024 it is the third best performer up better than 10% so it has a good chance to finish strong this year. Last week the XLE recorded its first back-to-back WEEKLY gains since an 8-week win streak between mid-February and early April. Notice the week prior found support at the rising 50 WEEK SMA following the break above the cup base pivot of 90.75 from mid-March, often an ideal entry point (notice how the very round 90 number was a thorn in its side last September and October with 4 weeks during the time-period above 90 intraweek but zero CLOSING above the figure and all reversing to finish with an 86 or 87 handle). Consider that very round 90 number a line in the sand and a MUST for it to conclude this coming week above it. Below is the daily chart of the XLE, and it found a bounce off the 200-day SMA in mid-June and this could be ready for a move toward par in Q3. Last week it rose 2.4% making it easily the best major S&P sector performer. As we enter July it begins a boring 3-month seasonality period the last 4 years so perhaps many are not expecting much from the space and it can give a crude awakening to the upside, pun intended.