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.
AI Footwear Winner? Of course, the above statement is a weak stab at humor, but the chart below shows how closely DECK has been trading to NVDA since the late October lows last year. Each has essentially doubled in PRICE and one should expect these leaders to continue to flex their muscles because we know that stocks once in motion, whether up or down, tend to remain that way, more likely than they are to reverse. In the small footwear niche arena DECK is not surprisingly being held hostage, most likely temporary, to round number theory. A bull flag is now in place and a move above 900 carries a measured move to 1050. CROX is sporting a bull flag formation of its own and a move through 120 could see a target of 145. BIRK is attempting to solidify itself above the very round 50 number and Friday almost precisely retested a double bottom trigger of 50.29 taken out on 2/12 (former resistance at the round 50 figure now looks like support). SHOO is north of its double bottom pivot of 43.68 taken out on 2/15.
Rosy Consumer: I have no idea how well the consumer is doing as we continue to hear that they are in the best shape they have been in for years, and on the other hand, more than half can not afford a $400 emergency bill. I leave it up to the charts to convey to me what the underlying situation is and if you look at either the top-heavy XLY or the broader-based XRT, each looks healthy. The daily chart of the XRT has the look of a cup with a high handle base or a bull flag, either a good sign. The XLY is flirting with a breakout of its own from a cup base and this could be ready to gravitate toward an all-time high above 200 made back in late 2021. Some top ten holdings in NKE and SBUX (both big China plays so if that region can turn around will be a tailwind) look very similar treading below both their downward-sloping 50 and 200-day SMAs, on a very bullish tape is concerning. They can give the fund a boost with a move higher, but nice moves from HD and LOW are helping. Home improvement peer FND confirms the fine sentiment in the strong space after a well-received earnings reaction and watch in the near term for a break above a cup base trigger of 116.80.