"Old Tech" Green Shoot: It has been hard to find many positives recently, but if one looks they shall find. I still think shorter term there is a need to be cautious, but longer term I think one can be building positions, it just depends on your time frame. Aspects I continue to like include the intraday ranges compressing. Additionally I can not tell you how many people I have spoken with this week that tell me they have an abundance of cash on the sideline waiting for "better opportunities". Once this money is deployed, it can possibly lead to a swift move higher in equity prices. A good way to find where to put the capital are in stocks that are shrugging off the weakness as of late. A good example may be INTC. This name does not garner the clout it once did in the past regarding the semiconductors, or the overall market for that matter, but it is quietly looking better. Intel ROSE this week to the tune of 3.4%, while the SMH fell by 2.6%. More aggressive buyers could enter here with a tight stop, but conservative investors should probably wait for a move above 56, as the potential of the right side of a cup base develops.
Final Shakeout? We discussed last week our excitement after a bullish engulfing WEEKLY candle was recorded. On the chart below of the Nasdaq, we see that this weeks drop, although fractional, is a bit disconcerting. Notice the two prior occasions bullish WEEKLY candlesticks patterns were registered, the benchmark set off higher almost immediately. Now keep in mind a lot of times these bullish patterns are retested, and that could be the start of the process which is happening now. One concerning element is the fact that the Nasdaq is now beginning to CLOSE in the lower half of its daily range, a bearish trait. It has done so 4 of the last 7, although Thursday did record a daily bullish engulfing candle. If the old adage "amateurs open the market, and pros CLOSE it" is true it is not a good sign. I still feel constructive about the tech space, software in particular. Others spots to pick at may be TWTR if it approaches the very round 20 number again, say around 21.50, after finding precise support there on 3/18. That would be almost 50% from where Elliott became involved.
Size Matters: It is a natural tendency for market participants to favor larger, more mature, dividend paying names in times of crisis (on an index level, one just has to look at the chart of the IWM which is now 38% off its most recent yearly peak). This shows up in PRICE action, especially so in the consumer space. Below we have the ratio chart comparing the XLY to the XRT, and it is not difficult to see what investors prefer. The XRT, is a more diverse ETF that shows its top component, RAD representing less than 4% of the fund. It is made up of smaller type names for the most part, and now sits 40% off most recent 52 week highs, while the more top heavy XLY is 30% off its recent yearly peak. The XLY meanwhile, lists its top 3 components as AMZN HD and MCD, which make up nearly half the ETF. Perhaps it is a win win for the XLY, as it is dominated by larger, super tanker type names, AND it is highly concentrated in them. Remember below is a ratio chart contrasting relative action between the 2 instruments, but both on an absolute basis are feeling the pain.
Transport Misery Or Opportunity: While the industrial space is a very diverse one, it is also a very economically sensitive one. Many groups in the arena tend to give a good signal about the genuine health of the economy. One could be looking at the moment at airlines, as the government may be looking to take an equity stake in select ones, and they see the JETS ETF now down 55% from most recent 52 week highs. If one was to watch try to get a feel for how the election in November may go, they may look at the ITA, a defense fund now off 40% from its highest yearly peak. The one that probably has the best overview of all of them would be the transport related IYT. This of course gives a good idea of how well goods are being shipped around, with rails, truckers and airlines. Last week the fund rose powerfully like everything else, to the tune of nearly 12%. It has lost nearly one third of its value from 52 week highs, and it ran into an upside gap fill from the 3/11 session on 3/25 and retreated. Is that all the gas bulls have in the tank, pun intended?
Tide Turning? I am becoming more and more bullish by the day, and there are certain things that are making me feel more sanguine. First and foremost PRICE action is becoming a bit more firm, with indexes trying to CLOSE in the upper half of their daily ranges (best example may be the 3/26 session when jobless claims came in more than 3 million and the Nasdaq rose nearly 6%). Second, technology is beginning to outperform and its leadership is imperative is this incipient move higher. We are still well off the highs, but the Nasdaq is now 21% off most recent 52 week highs, compared to the S&P 500 and Dow which are 23 and 24% respectively off their own recent yearly peaks. Mondays which have been awful with four of the last five lower by 3.7, 7.3, 12.3 and .3% on 2/24, 3/9, 3/16 and 3/23, may have turned the corner with a firm session today. Sure the tech heavy benchmark still has many hurdles, and tomorrow may be another test as rebalancing takes place. Another 3% move higher, similar to today, puts it square at the very round 8000 figure, in the rough area of an upside gap fill from 3/11. Below we can see the momentum the XLK has behind it on a YTD basis, as it is less than .5% from overtaking utilities for the best major S&P sector actor. I put myself in the camp of selling former laggards that have ran too far short here, as opposed to adding new money to present winners here, which probably means we are going a lot higher.