Know Your Time Frame: Healthcare continues to be the "worst" performing major S&P sector YTD, albeit it is higher by more than 8% via the XLV. However for those looking for a silver lining it is the best performing major S&P sector over the last one month timeframe, edging out the materials and real estate groups. The XLV is looking for its first three week winning streak in the last 6 months, to show how uneven the space has been. Tuesday the ETF broke above a bull flag pivot of 92, and the breakout carries a measured move to 97. Today demonstrated good follow through up nearly 1%, and it is important as we know the best breakouts tend to work right away. Focus on the leaders in the nascent strength within. Silky, Smooth New Issue: There has been plenty of news in the healthcare group concerning M&A activity. DHR and GE have been in talks for the latter's biopharma business. HQY is acquiring WAGE, and last year witnessed some mega deals with CI buying ESRX and CVS swallowing AET. Amazon wanted a piece and bought Pillpack for $1 billion. This week saw PFE make an offer for ARRY, and should one expect this type of action to continue? No one knows, and is it a bullish sign that companies see value in peers, or is it a function of the depressed prices of many names in the group? Not only has there been plenty of M&A news, but IPOs continue to flood the market in the healthcare arena. The chart of SILK below looks attractive. Examples: The healthcare space has been anything but a leader in 2019, but when one can discover names that have been holding their own, or even outperforming in a firm capacity, once the group gets going again it could be one of the first to sprint out of the gate. Below is a possible example of NVCR and how it appeared in our 6/6 Healthcare Report. It currently trades right at all time highs, and did break above the 55.08 cup with handle pivot and has since risen another quick 10% plus. It has advanced 7 of the last 8 weeks, and this week is showing extraordinary power higher by 12% heading into Thursday.
Not All Retail Created Equal: There are some startling differences in some of the most well known consumer ETFs. One happens to be trading just off all time highs, while the other the XRT is languishing well underneath both its downward sloping 50 and 200 day SMAs. Perhaps this is a lesson in concentration versus diversification, as the top 4 holdings in the XLY in AMZN, HD, MCD and NKE represent nearly one half of the fund. The XRT by contrast has no member being more than 1.75% of the ETF. The old adage goes "concentration creates wealth, and diversification preserves it". Of course one has to be astute in their stock selection, but the makeup in the ETFs previously mentioned are a good illustration of the old axiom. Vanity Group Leaders In Short Supply: The popularity of the selfie stick is so far in the rear view mirror it can barely be seen. It was a good indication however of the lengths many would go to make themselves look good. There certainly is a market for stocks in the space, albeit two names stand out head and shoulders above the rest, ULTA and EL. Below is the ratio chart of ULTA:SBH and shows just how strongly ULTA has outperformed its peer. SBH is not alone in its weakling status as ELF is also 37% off its most recent 52 week highs (AVP and COTY are well off their highs too, even with firm recent runs). Longs in the laggards have most likely had mascara running down their eyes. Examples: On strong sessions like Wednesday, many names will go higher as a rising tide will lift all boats. For those left behind, and not able to participate on a robust tape, one would be smart to tread with caution. A possible example of just this could be the chart below of SEAS and how it appeared in our 6/5 Consumer Report. The name lost 2% Tuesday, and is lower 7 of the last 11 days. A potential red flag was its inability to CLOSE above a 32.57 cup base pivot recently in a base that began the week ending 9/14/18. It is nearing a gap fill from the 5/24 session where the trade would be best closed out.
Stubborn Nasdaq: There are always two sides to every story, and in trading it is the bull and bear case. Each bias can be backed up by ones own thought process, but the only side that is correct in investing is PRICE. Below is the chart of the Nasdaq, and bulls can declare the index is not shying away from its 50 day SMA like it did last month, and that a double bottom formation is taking shape. Until that double bottom is taken out bears can state three lower lows, and that it is taking too much time to hurdle back above the 50 day SMA. Both narratives have their merit, but it will be PRICE action that determines the winner. The bears still have the burden of proof, as the markets have been robust for quite some time, but the bulls need to start proving their theory is worthy, by not wasting much more time. Success Attracts Attention: In the world of payment plays, the room is getting crowded. When achievements are made, competitors begin circling. Perhaps it is an act of flattery being the best form of imitation, and knowing it can be done. The pioneers that began the journey will have a head start, but newcomers will often be flush with cash and talent. Below we take a look at the ratio chart comparing SQ:PYPL, and while the former has been lagging its main rival, now 28% off most recent 52 week highs (PYPL trades right at all time highs), it is beginning to act better. Will it last? No one knows, but it seems like the names are abundant such as GPN PAGS and WP to name a few. Perhaps there is room for several players to flourish. Pay attention most to the ones acting well from a PRICE standpoint. Examples: We always like to mention that the best stocks will often give you a chance to buy on the way UP. Below is a good example of that with the chart of MSFT, and how it was profiled in our 6/3 Technology Report. This is probably one of the best in breed "old tech" names, and its inclusion in the software group does not hurt. This leader recently broke above a double bottom pivot of 130.56 on 6/7, and has now set up a bull flag formation. A break above 134 can be added to yet again, and would contain a measured move to 149.
Financial Dark Horse: With all the chatter of a couple or more interest rate cuts this year, some banks are doing their best to overcome a tough situation. The XLF is just the third best major S&P sector YTD thus far, although it has advanced 14.9% in 2019. JPM has always been interpreted as best in breed, but C is looking to make a challenge for that prestige. Both of the aforementioned names are higher by 2% over the last one year period and sport similar dividend yield with C at 2.7 and JPM at 2.9%, but on a YTD basis C has advanced 30% compared to JPM's 12%. The chart below shows a handle that was completed Friday on a good looking cup base. Ten Year Anchor: The 10 year treasury yield is down 22 of the last 31 weeks since hitting 3.24% in the fall of last year. It is on a current 5 week losing streak falling 19%. Of course this is weighing down the traditional banks, that looks for higher rates to capture as much margin on loans as they can. Below is the chart of the ten year treasury yield and its downtrend is firmly in place. While it may be a welcoming sign for consumers on their credit cards, or those looking for a mortgage, it is far from a sign of confidence from investors. Yields have been falling around the world with many developed nations sporting negative rates. That will attract capital to our "safe haven" status that will continue to push rates lower. Do not expect the downtrend to reverse anytime soon. Examples: The financial administration group has been a solid performer with best of breed play EEFT and M&A activity recently with FDC and WAGE. Below is another name that has mentioned it is exploring a sale, EVRI and how it appeared in our 5/20 Financial Sector Review (keep in mind relying on a takeover should never be one motivation for entering a position). It has produced back to back positive earnings reactions of 2.6 and 11.5% on 5/8 and 3/13. Since the beginning of 2019 it has recored SEVEN weekly advances of 7% or more.
Wounded Retailers: The bifurcation that exists is all sectors may not be as profound as it is in the consumer space. While there are leaders in this arena with names like CMG, TGT or OLLI, there is a plethora of retail laggards. AEO, GIII and VFC are all off between 40-50% from most recent 52 week highs, and these were former respectable stocks. You can put two other laggards in the mix, both that had spinoff or takeover talk associated with them. It is a good example of why to make all trading decisions based on PRICE action, because each of these names displayed weakness in the technicals BEFORE the fundamentals. JWN has long been rumored to be taken private, and it may happen, but GPS is now looking at a SEVEN week losing streak, after an announcement on 3/1 to spinoff Old Navy. How much lower will it go when the Banana Republic disclosure to trade on its own is made, of course this statement is pure hyperbole. Climbing The Ladder: The old adage goes it is harder to remain at the top, than actually getting there. The thought is once the peak is achieved many are gunning for you. Below is the ratio chart comparing Under Armour to best in breed European play. It has some positive aspects to admire, as it recently retested a bullish trend line break. The reason for our "climbing the ladder" reference that is is difficult to ascend to the top as well. Recently we highlighted a ratio chart comparing UAA:NKE in our 5/31 Consumer Report and that has indeed continued to follow through. UAA is now at 52 week highs, while NKE swims 7% off its own one year highs. The footwear play still has other mountains to climb including DECK, which is higher by 10% this week. The treads are going to be worn out on the journey toward the summit, pun intended. Examples: When sizing up peers within a group it is always interesting to see how they compare. We are a big fan of ratio charts, and although on the chart below we can see how HD fared against the overall consumer discretionary space (HD is now 6% off most recent 52 week highs, while LOW is 17% off most recent peaks). Below is the example of it, and how it appeared in our 6/5 Consumer Sector Report. It did indeed burst above its 50 day SMA this week, and today recorded its first CLOSE above the very round 200 number, after being rejected there between Monday-Wednesday. Watch now for a potential breakout above a cup base pivot of 208.40 in the near term.