Douglas Busch

Groovy Consumer:   The discretionary group has been on a roll lately. And it has been broad based if you will as both the XLY and XRT have been on the ascent. The daily chart of the XRT below shows smooth overall action and remaining above the cup with high handle pivot, which can also be interpreted as a bull flag. As well as the XLY has acted, notice that the XRT, the more "equal weight" fund has outperformed the XLY over the last 6 months. On the MONTHLY chart (notice the bearish shooting star at the very round par number in November 2021), one can see why I feel there is still some runway left as this could play catch up to the overall market. The S&P 500 which is now at all-time highs has left the XRT in the dust. Of course, one could say that there is a reason why it has underperformed, and that is a valid point, but as long as this can remain above the daily cup with high handle pivot remain constructive. TSLA which we have spoken about before seems to be finding its footing, and it is by far the second-largest holding in the XLY, and it will have some headwinds here as it looks to fill the upside gap, which would also be the top of the range in a bearish rising wedge. It is a good start that trade is tightening up at the very round 200 number and a move above the 50-day SMA near 210 as PRICE catches up and this could fly.

Tech Bubbling: And I mean that in a good way, as when one hears the word bubble their attention perks up. Semis, software, and "old tech" names witnessed their fair share of winners Thursday. After earnings reactions, OKTA cleared the very round par number and PSTG surged 25%. Others like MRVL and SWKS acted well and are setting up add-on buy points. Taking a peek at the MONTHLY chart of the Nasdaq below, with the leap year extending the month, one can see how important Thursday's CLOSE was above the very round 16000 number. In yesterday's tech note, we showed how on the daily chart it was stalling there, but it received a decent bump after a well-received PCE report pre-market. Remember markets tend to shrug off negative candles, and all-time highs are not bearish. I thought we needed some back and filling before the next move higher, but I may have to rethink that. Many individual names are digesting the big move to end 2023, and those types of actions usually resolve higher, in the direction from which they came.

Tech Pitstop or Something More Sinister?   Technology continues to be a major focus as the group via the XLK is up 6% YTD. Semiconductors are the outlier with the SMH is almost 20% thus far in 2024. Like many other instruments it has produced some weak candles and negative divergences remain but PRICE seems to be hanging in there. Remember PRICE is omnipotent, but for how much longer will it remain at this lofty altitude? The daily chart of the SMH in the circled area shows a bearish dark cloud cover and some spinning tops which suggest some potential softness upcoming (on the ratio chart it has been a clear winner against software which we will talk about later in this note). The daily chart of the Nasdaq also has some areas of concern, but are too many bearish and looking for a tactical pullback in the 3-5% range which will perhaps add fuel to the fire if we break convincingly to new highs? One does need to keep in mind that the weak seasonality periods will almost be in the rearview mirror, although March has been essentially UNCH for the last 5 years. If the tech benchmarks can remain afloat and just trade sideways through March it will frustrate many as they say corrections in "time tend to be more painful than PRICE."

Regional Differences:   Often when one hears this phrase they are thinking about international conflicts and the like. However, within the diverse financial space, there have been some issues obviously in the regional bank arena. The WEEKLY chart below of the KRE shows it at an inflection point. It is right back to the level of a break above an ascending triangle pivot of 47.50, and this is now 23% off its most recent 52-week highs (while the XLF that we wrote about recently is trading right at its annual peak). Coming into Tuesday it was on a 6 session losing streak, although none of the declines was greater than 1%. Notice the last 3 weeks have CLOSED somewhat tautly so it will be no surprise with a big move likely in the very short term. The WEEKLY ADX on the bottom of the chart will hold some clues, and if the green line can start to tilt higher in the next couple weeks that will be a good sign that the direction may be upward. Notice how the black line rising displayed some positive divergence in Q2 2023, which gave some foreshadowing of a potential rise that came in May. If strength can materialize going forward on the MONTHLY chart it will have to catapult the 50 MONTH SMA (notice how the top was called by consecutive doji candles in December 2021-January 2022).

Brute Performance:       The industrials have been on the move higher and the XLI is holding its own in 2024 up more than 5% so far, making it the 5th best-acting major S&P sector. Transportation services and trucking subgroups have been the best performers. Stinking up the joint have been the delivery services plays with UPS and FDX struggling, although we have to give the latter credit for making a stand where we thought it had to here. On the WEEKLY chart below, one can see the nice steady action higher since the completion of the bullish morning star candle the last week of October 2023 (notice the cup base breakout near 110 was successfully retested before resuming its strong rally). On the MONTHLY chart notice how it has been robust against the S&P 500 on the ratio chart since the COVID lows, and this time feels different after the powerful back-to-back MONTHLY showings which CLOSED at the top of the range in October-November 2022 and again in June-July 2023. This month with a few sessions left is extending its gains for February, unlike the prior 2 examples, a good sign.