Where Is The Money Flowing? Willie Sutton was once asked why do you rob banks, and his infamous reply was "because thats where the money is". Well investors could take a cue from him, and put a real focus on the financials, since that is where market participants are deploying their capital. The group has been the second best major S&P sector performer (behind just real estate) over the last one month period. Is it a nascent start to better things to come, or will the longer term trend endure as the XLF is just the 8th best actor among all 11 on a YTD basis? Of course we have received many earning reports from some of the big banks with JPM and C higher by 3 and 1.4% on 10/15. BAC rose 1.5% on 10/16, but the largest component in the XLK, Berkshire Hathaway, looks like it is registering its fifth straight lower high dating back to last December. Asset Manager Accumulation: While it is no secret that the S&P 500 is enjoying a nice 2019, measured against some of the leading asset managers it pales in comparison. The chart below shows the disparity with BX APO and CG all outperforming in a powerful way. I could have put CNS in there as it has enjoyed back to back 7% plus weekly gains and has advanced another 1.8% this week so far. We are all about PRICE movement, but what could be behind the shift? It is possible that there is a transfer underway back into active management, from the passive state we have heard about incessantly? And who says you can not have your cake and eat it too. Overwhelmingly that is the case, but with the niche group one is getting BOTH capital appreciation and yield. Examples: Not all boats/names have been affected positively by the rising financial tide. One has to look no further than former best of breed players MA and V which both have lost ground 4 of the last 6 weeks, and are following through lower in a strong way this week again. Below is another stock lagging, PYPL, and how it appeared in our 9/30 Financial Note. The stock now trades in bear market mode, 21% off most recent 52 week highs, and is lower 10 of the last 14 weeks. This week is off yet another 5% as it trades deeper below its 200 day SMA. The trend has certainly changed as it began 2019 with a 23 of 29 week winning streak. Perhaps a small consolation is it is acting better than SQ which is currently 30% off its own yearly peak. Tomorrow morning TWTR reports, and if that is a doozy expect the chatter that Jack can not run 2 companies simultaneously to heat up.
XRT Bull Trap? The comparison of the more diverse XRT to the denser XLY have been mentioned frequently. The gap is somewhat narrowing as the XRT begins to show a better complexion on its chart. The ETF is still in correction mode down 13% from most recent 52 week highs, but less than 2 months ago it sat in bear market territory. It is at a line in the sand here in my opinion, as not only is it not accelerating from a recent break above double bottom pattern, but it does not want to CLOSE back below its 200 day SMA so quickly after it just did so with 4 brief sessions above it in early September. Prior to this the XRT found firm pushback at the 200 day SMA since last November, so this recent break above the secular line could be an important shift if it can become support leaving behind the feeling of stiff resistance. Revenge Of The Little Guy: Not too long ago talk was incessant about how Amazon was going to destroy smaller names in the retail arena. Sure there have been disruptions to many other brick and mortar names, but let's give credit to some of the plays that have done their part to succeed against this. Full disclosure I did write recently about in a bullish light about AMZN as long as it remains above the round 1700 which happens to be a double bottom from this May and October. If it falls underneath there all bets are off, and keep in mind it has gone literally NOWHERE over the last one year period, UNCH in that timeframe. Below we see how since the beginning of 2019 it has been vastly outshined by the likes of HIBB TPX WSM AAN KMX and BOOT to name a few. A David versus Goliath modern day story. Examples: The retail space has been a bifurcated one, but some smaller names are showing that they deserve to be mentioned in any chatter about how their larger cap peers are outperforming. Below is the chart of an example in ZUMZ and how it appeared in our 10/1 Consumer Note. This is a good illustration of round number theory, and how one can ADD to leading stocks on the way UP. This one acted well POST breakout from a double bottom in early September, and we know the best breakouts tend to work out right away. It defended the round 30 number very well with 5 sessions in the last few weeks trading below the figure, but zero CLOSES under it. Now it is trading right at a possible add on buy point through a 33.57 trigger. As always demand a CLOSE above.
Software Spent? The semiconductors have been climbing the wall of worry, and that wall is becoming more agonizing recently. The SMH recorded its third straight CLOSE in the lower half of the daily range, AFTER a bullish ascending triangle breakout on Tuesday. The best breakouts tend to work right away, so the perception is a possible bull trap here. On its WEEKLY chart it recorded a bearish reversal at all time highs. After that stiff dose of gloom, we have not even started with software. The IGV undercut its 200 day SMA Friday, and bearishness has not even seemed to register in sentiment yet. Marginally encouraging was the quick recapture of the important line after breaking below it on 10/2 just for one session as 10/3 registered a bullish engulfing candle. The ETF lost 3.8% this week, its second worst WEEKLY decline of 2019, as stalwarts like COUP shaved nearly one fifth of its value this week alone. These are drastic moves and are rarely seen in bottoming phases. Nvidia Deservers General Status Going Forward: The semiconductors have been doing a good job in carrying the bulk of the weight in the technology world, but with little help elsewhere the fatigue may be setting in. Some bright spots among individual names have dimmed as of late, with MU suddenly 15% off most recent 52 week highs, and in the process of possibly forming the right clavicle in a bearish head and shoulders pattern. Leader KLAC recorded a bearish shooting star on Thursday. There are some names still looking well, with CRUS trading in a range between the round 50-60 numbers since late July. The chart below of NVDA deserves respect, and although it hit a speed bump at the very round 200 number this week, the trend is higher and weakness should be taken advantage of. Examples: In life as in markets most people have short memories. Whether that is advantageous or not is up for debate, but in investing it may likely be a good thing. An example of one not having a short recollection is the chart below of CIEN and how it appeared in our 10/14 Technology Note. Those who missed out upon the huge 6/6 earnings jump of 27% could have been rewarded for their patience as the gap was recently filled. There is some wisdom to align to this development to paint either bias one has. The bulls will say the gap was filled, the bears will note the old axiom, if one missed the train, and it comes back for you there is most likely something wrong with it. Either way PRICE will determine who is right, and Friday shrugged off the weak overall action, and in my opinion the risk/reward still lies in favor of the bulls. Trade accordingly.
Industrial Clout: Below we take a look at the one week performance, very small sample, of all 11 major S&P sectors, and overall bulls are seeing some positives. The lagging groups emanate from a defensive nature with real estate staples and utilities among the bottom 4. Up near the top, at number 3 are the industrials with a gain of almost 3%. The rails have been a big contributor to that move with KSU CSX and UNP all nearly 4% last week and following through this week too. FAST in the suppliers space sprinted higher by more than 14% last week in the best weekly volume in 11 months. What has not been participating in the nascent vigor are waste management names, once stalwarts in the arena (defense names such as LMT NOC and KHX). WM dropped fractionally last week, but peer RSG is sporting a bearish head and shoulders pattern with an 85 neckline. Time to put the chart in the bin, pun intended? Delivery Status: The consumer is alive and well and it can be documented with the strength of names that transport them. However some will do a better job of it than others, and that will show up in the technicals. Perhaps that is a management issue, and an example of where the fundamentals can compliment technical analysis. Whatever the case may be PRICE action is how we are paid and judged upon, so it makes sense to honor it. UPS which REPORTS next Tuesday before the open it, currently sits just 4% off most recent 52 week highs, while FDX is now 36% off its own most recent yearly peak. UPS is nearing a double bottom pivot of 120.50 which potentially can be taken out on a well received earnings reaction next week. Those waiting for mean reversion between these two giants, may have to wait a bit longer. Recent Examples: The transports are obviously an excellent indicator of the genuine health of an economy. Of course it is a diverse group with trucking, rails and airlines, etc, but it also plays a role with purists in regards to Dow Theory. Below is the chart of SNDR and how it appeared in our 10/2 Industrial Report. It is a relatively new IPO coming public 2 1/2 years ago, and was well regarded rising 24 of 37 weeks ending between 5/19/17-1/26/18 before being halted right at the round 30 number. Fast forward to the present and it has advanced 13 of the last 19 weeks, and on its WEEKLY chart is sporting a bullish inverse head and shoulders formation with a neckline of 23. A break above there can be added to and would carry a measured move to, you guessed it the round 30 number. Triple tops are a rarity, if that were to occur it would be likely to power higher from there.
High Beta-Low Volatility Affecting Healthcare Too: Much has been made about this comparison in the overall market, and it is a relevant one. But below we take a look at the ratio chart compared the more mature, dividend paying names with the XLV, against the higher beta biotech plays with the XBI. The chart here shows the relationship at a potential crossroads. It should not be a huge ask for biotech to outperform on a relative basis against the XLV, as 3 of the 4 top components in the ETF, in JNJ UNH and PFE are 9, 18 and 22% off their most recent 52 week highs. We did post an XBI WEEKLY chart earlier this week showing how it has CLOSED well off the intraweek lows the last 2 weeks, and both finished above its 200 day SMA. This week is higher by 2% and going for its first 3 week winning streak since early January. Muted Chatter On Name Which Prior Was Just The Opposite: A stock that was formerly talked about incessantly by many on the long side months ago, has suddenly turned to crickets. Many were most likely wrong, but the fact that investors have left the name for dead could be a good sign. Of course PRICE action supersedes all else, and in that regard one can look at the stock with a lukewarmly bullish tint. This is NOT a recommendation, although AMRN which is still 33% off most recent 52 week highs, has quietly followed through nicely thus far this week rising more than 5%, after last week jumped nearly 6%. On its WEEKLY chart it has made a pattern and series of higher lows at the 10, 12 and 14 numbers. A triple top near 23 has burned many, and I have no idea whether those highs will ever be hit again, but give it credit currently for peeking its head above its 50 day SMA, which coincides with a break ABOVE a bearish descending triangle. Examples: Obviously the longer a base is, when the breakout occurs it will be more success prone. Below is the chart of SGEN and how it appeared in our 10/9 Healthcare Note. Notice this bullish ascending triangle formed over a one year time period, and it aligned with the round 80 number forming a "cluster of evidence". Give it credit for performing well in an overall weak healthcare space. It currently trades just 5% off most recent all time highs, and this stock actually retested the breakout that very same 10/9 session and jumped off the 80 figure, a good sign as former resistance now very well could become support. Keep in mind it is not uncommon for breakouts to retest the move to test its validity and attempt to shake weak shareholders out.