Stamina Questions: Healthcare feels like its on life support, but is it dead? One should not firmly declare that feeling, as it did record its first 4 week winning streak since last December and early this year. The gains were mild the last 3 weeks, but it was the best performing group last Friday, on a soft session. We know trends tend to persist, much more likely than they are to reverse, so overall one should proceed with caution. The argument that this space will outperform if investors become conservative is flimsy at best. Obviously market participants have become yield starved, but healthcare has not kept pace with the bond proxy like groups on a YTD basis, like real estate and utilities have (currently the XLRE and XLU are the 2nd and 4th best major S&P sectors in 2019 thus far). Dead Weight: The chart below shows the YTD performance thus far of all the major S&P sectors. Each of the 11 are positive, but if you want to make an individual stock analogy, one could comment on the "weakness" of healthcare. In a broad bull market, the vast majority of stocks will rise, but that is where stock picking comes into play, as the more astute investor will find leaders that could rise 40-50% or more, while the median stock will rise 10-12%. Should the fact that healthcare is "lagging", mean traders should avoid seeking names in healthcare? Not necessarily, but keep in mind the bulk of a stocks gain emanate from the very specific sector it comes from. Examples: The mega cap pharma names saw value in spinning off animal related names. Of course they do pet owners will spend wildly at the veterinarian office. However the stocks of the newly created names have diverged on different paths since trading on their own. PFE which spun off ZTS, has been the winner higher by 47% YTD and 39% over the last one year period. Below is the chart of ELAN which was spun off from LLY, and how it was presented in our 9/16 Healthcare Note. It is LOWER by 13% YTD and down 24% over the last one year period. The suggested pivot was NOT hit, but I believe this one trends lower. It demonstrated poor relative strength this week falling 4%, while the PPH ROSE 1.2%.
Anything But Secure: As the software arena attempts to navigate its way to a potential bottom, some sub sectors in the space are not cooperating. Below is the chart of the HACK ETF, which represents the security names. Against the IGV its performance has been forgettable. On a one year look back period the HACK is actually DOWN 2%, while the IGV has risen a tepid 9%. Over a much shorter time frame, the IGV sits 6% off its most recent 52 week highs, while HACK is 9% from its most recent yearly peak. Top component SYMC, which has activist involvement, bounced off the very round 20 number on 8/7, and has advanced firmly since. Others in the top ten of the fund like SAIL, a somewhat recent IPO, now trade 40% off most recent 52 week highs. More established names like FEYE, which was rejected at the very round 20 figure last November-December, are trading incompetently. Let the dust settle where it may on the security names, and wait for bottoming candles to surface. It makes the catching knives a bit less messy. Semi Awakening? The semiconductor space has been the creme of the crop within technology recently. We believe this nascent trend will continue. Focusing inside the group some names have responded much better than others and they deserve the bulk of any capital you are willing to allocate to the space. Below we take a look at a name AMKR, that on first glance would seem strong trading just 5% off most recent 52 week highs. A longer term look, would show it has been meddling in the single digits for a year and a half. I prefer to buy leaders, but some turnaround plays are worthy of speculation. We spoke of the round 10 number thwarting some consumer names in our last 2 daily reports, but this one could see a move above that very round number. It has a beach ball held underwater feeling, but as always demand PRICE confirmation on a CLOSING basis. Examples: To be a part of two strong groups is certainly a blessing. The solar space has been with the TAN higher 26 of the last 38 weeks, beginning with a 9 week winning streak beginning with the week ending 12/28/18, and this week has added another 8.4% heading into Friday. Below is the chart of FSLR, which has exposure to the semiconductor space, and how it appeared in our 9/12 Technology Note. For 6 weeks the stock was rejected at its 50 day SMA, but that all changed this week. It now trades just 3% off most recent 52 week highs, and is approaching an add on with a potential break above a cup base pivot of 69.34. On its WEEKLY chart that same trigger can be interpreted as a cup with handle base that began the week ending 4/27/18.
Round Ten Roadblock: In yesterdays Consumer Note we discussed a couple names, APRN and PIR, that underwent recent reverse stock splits and have in our opinion made unwarranted, oversized moves. They met a brick in the wall at the round 10 number, and another undeserving stock to do so this week is MIK. It is weighed down by debt, and is a name that has undergone something we feel could be just as bearish as a reverse stock split, being taken private and coming public again. Party City or BJ's Wholesale Club come to mind. Below we take a look at the chart of MIK, and it too doubled recently, but still trades 51% off most recent 52 week highs. These names are tricky to trade, but it is again just an illustration of the wildly aggressive moves we have seen from many names in the space. We used the adjective frothy on Wednesday, maybe a better word Thursday would be bubbly in regards to the retail laggards. 50 Day Plunge: The homebuilding names have been front and center with the constant talk regarding interest rates. The XHB has benefitted as the fund is just 1% off most recent 52 week highs. Other groups that have appreciated due to their reliance on the space are some of the home improvement retailers. RH has advanced 14 of the last 15 weeks, and risen nearly 100 handles in the process. SITE, a landscaping play has gained 22 of the last 32 weeks. Below we take a look at the name of POOL, a former best of breed name. Its chart is sporting some possible leaks, pun intended, as it carves out a bear flag formation. Last week it fell by 5.7%, its largest weekly loss in 10 months in active volume too. A bearish evening star was completed on 9/8, and has seen brisk follow through to the downside, undercutting its 50 day SMA. Keep your life preservers on until it recoups that line. Examples: With the election rhetoric heating up, some names that will seem to benefit would be Twitter, and the New York Times. There is certainly some bifurcation going on between the two stocks, and below is the chart of the latter, NYT, and how it appeared in our 9/3 Consumer Note. It is now near bear market mode down 19% from most recent 52 week highs, and reeling after a recent earnings slide of more than 12% on 8/7, with the next session pushing below the 200 day SMA. It has now CLOSED below that long term secular line for 6 weeks, and the longer it stay there the worse. This is a good example as well of the red flag nature of breakouts unraveling too quickly. Maintain a bearish stance as long as it swims below the 200 day.
Size Matters: The XLY is clinging on to the third best performing major S&P sector YTD, higher by nearly 25% (industrials and communication services are within 1 percentage point). The ETF is 4 sessions into a possible handle on a cup base, and tomorrow would complete it with a potential pivot of 124.49. It trades just 2% from most recent 52 week highs, while the XRT still wallows near bear market territory off by 18% from its most recent yearly peak. The more diverse retail ETF, whose largest component makes up just 2.3% of the fund, just broke above a downtrend line, as seen below on the ratio chart compared to the XLY. The latter's top holding is AMZN at nearly 22%. Is this move on the ratio chart a bull trap? AMZN will have a big say in the answer to that question. After a double top at the very round 2000 number last summer and this July, a move above its 50 day SMA will give the chart a nice look as it builds the right side of a cup base. If it does indeed come into contact with 2000 heading into year end, i would also be a WEEKLY bullish ascending triangle, and a breakout would carry a measured move to 2700. Reverse Split Mania: Having been to Ireland several times in the last few years, I have been exposed to some attempted humor. One joke goes, "did you know what the fastest growing city in the world is? Dublin, as its population keeps doublin and doublin" (get it?). Not sure what is more crazy, but rivaling that is the near "doubling" in PRICE from stocks that have undergone reverse splits this June, including PIR and APRN. PIR is still 73% off most recent 52 week highs, AFTER traveling recently from 3 to the very round 10 figure. APRN is also doing battle with the very round 10 number here and still trades 65% off its most recent yearly peak. Certainly makes this recent rally in retail look frothy when names like these explode. STMP has advanced 12 of the last 15 weeks, jumping 130% in the process and nearing a big gap fill from the 5/8 session. Remember this one imploded before then, 3 months prior after parting ways with the Postal Service. Examples: The 12.4% combined move during a current 3 week winning streak by the XRT, surely lifted the vast majority of boats in the space. Many were unwarranted, and included in that conversation could be the chart below of VRA and how it appeared in our 9/13 Consumer Note. The stock is still 43% off most recent 52 week highs, even with the jump of more than 13% the week ending 9/13. A few factors have us bearish on this name, number one the upside gap fill from the 9/3 session that was in unison with the very round 10 number. That same level could be considered a breakdown below a bearish descending triangle that began in mid March and carries a measured move to 5.50.
Semiconductors Accredited: Perhaps I making this relationship sound like a broken record, but it is important to know which or the major subsectors within technology is outperforming. It is a good display of where your capital should be better allocated. This week we look at the WEEKLY ratio chart, comparing the SMH and IGV, and the semiconductors avoided a triple top. The baton looks like it has been passed after a brutal downtrend for all of 2018. The last 3 weeks the SMH has outshined the IGV, with last week showing a big divergence with the SMH rising 2%, while the IGV FELL 2.2%. The prior 2 weeks ending 9/6 and 8/30 weighed heavily in the favor of semis too with the SMH producing back to back 4% plus gains, while the IGV rose an impotent 1.3 and 1.2%. Software Name Continues to Buck Trend: We brought attention to this chart last week, after the potential trend change following the bullish harami cross recorded on 9/4 while finding support at its 50 day SMA. It was a line it had been below for more than 4 months prior, and fast forward to today and the bullish action continues. The stock is approaching an area that has given it trouble since June near the 28 level, and a move through would be above an ascending triangle. A measured move to 38 would be in the cards, but it would probably encounter some difficulty near an upside gap fill from the 5/30 session first. Its 50 day SMA is beginning to flatline for the first time in months. Last weeks jump of nearly 13%, comes on the heels of the two week surge of more than 30% the weeks ending 8/23-30. Examples: WEEKLY charts must be looked at, as they will give a clear picture of what the potential future direction may be. Below is a good example of the chart of SVMK and how it appeared in our 9/4 Technology Note. The long digestion after a cup with handle breakout was a good sign, and included a failed breakout above a cup base pivot of 18.58 the week ending 7/26 that rose 10.5%. The very round 20 figure pushed the stock back on 8/2, a day where it jumped 18%. It has since reset and on its daily chart has an add on above a double bottom trigger of 18.57 (remember leaders give you chances to add to your position on the way UP). Additionally a break above that 20 number would be a year long cup with handle breakout in a base started began one year ago, the week it came public.