Industrial Revolution? The markets have a very short memory as 2019 is off to a fast start, and one can not blame their putting the ugly Q4 in the rear view mirror. Below is just what bulls want to see in the YTD returns, except perhaps for energy leading a few weeks into the year. All of the major S&P sectors are in the green so far, but lagging are staples and utilities. Two things come to mind about this nascent run. One good news is being interpreted so in PRICE action. Secondly the old adage states, "bull markets do not let you in", and that is how it feels presently. No pullbacks have been offered, with the exception of the 1/3 session. Take the Longer View: Thursday the industrials were higher by 1.7%, the second best behaved major sector behind just the materials. Give the XLI temporary credit for CLOSING above its downward sloping 50 day SMA today. On its WEEKLY chart below, obviously a longer time frame, it is still premature, but bulls can point to a couple positive technical aspects. Weakness was delivered following the inability to break above a cup base trigger of 80.76 the week ending 9/21/18 (base was V shaped which tend to be more failure prone) in a base 9 months long. We are still in no mans land on the ETF, but many individual names are setting up that we identify in the latter part of this report, including DE. Examples: The airlines have been seeing some turbulence recently, we spoke of this in our Industrial Report from 1/10, although collectively there has been some firmness. The JETS ETF is outperforming this week as the fund is higher by 2.8% this week heading into Friday. Like every group there will be winners and losers, and below is the chart of RYAAY and how it was presented in our 1/10 report. It is a laggard, if one turned its chart upside down it would be a beauty, down nearly half of its value from the most recent 52 week highs. This week it has declined nearly 6%, very weak relative strength. The measured move has not been achieved, and one may want to pair this name up on the short side with a leader like SAVE.
Consumer Ready For Post Holiday Hangover? The XLY, like many ETFs, is flawed somewhat with very heavy weightings near the top. This fund is no exception as AMZN represents nearly one quarter of it (more than 40% when you add the second and third largest holdings HD and MCD). We are just here to monitor PRICE action, so let's get right to it. The fund was on a major breakout watch, with a three week tight pattern at all time highs, the weeks ending 9/14-28/18 as all three CLOSED within just .20 of each other. That type of coiling action could lead to explosive moves but when it did not materialize, the chart folded like a cheap suit. Volume on this nearly 4 week comeback has been lukewarm, compared to the selloff on Q4 last year, but more concerning to me is the slope of the WEEKLY 50 day SMA is sloping lower for the first time in years. Retail Happenings: Although we are heading into earnings chaos this time of year, not to many retailers have been reporting just yet. That does not mean the group is not making headlines. JWN warned on holidays sales today and the stock dropped almost 5%. Perennial laggard BBBY, which traded at 80 in late '13, actually jumped on an earnings release. Last week rose more than 27%, its best gain in many years. For those that believe overall moves are getting a bit long in the tooth when the garbage names in the space start to bubble higher, they can point to APRN. A name that probably should never come public, it raged higher Tuesday by more than 45% in the best daily volume since coming public. It broke above its 50 day SMA for the first time since last July, but we know there are much better fish to fry. Examples: The casual dining space has witnessed some nice moves recently, most notably CMG breaking above a 501.08 double bottom trigger on 1/10, and then even more bullish retesting the pivot a couple sessions later and holding firm. Below is a chart of CBRL and how it was presented in our Consumer Report from 1/2. It was a play on a weak crude price as the vast majority of their establishments were located along interstates. A good tell may be the fact that the stock kept traveling northward even as oil appreciated. It is now more than 10 handles above the suggested entry and is looking to break free from the grips of its 50 day SMA. If it can do so the corresponding move could be tasty, pun intended.
Biotech White Hot. Too Much So? The IBB has stormed higher by nearly 19% the last 3 weeks as it is one of the best performing ETFs in 2019 thus far. As powerful as that move has been it has still not traded above the prior 3 weeks drop of 17.5% during the weeks ending between 12/7-21/18. The fund is now smack up against resistance at a slightly downward sloping 200 day SMA for the third time in as many months. On 10/16 it actually did break above the long term secular line creating a bull trap, as it retreated back underneath it just three sessions later. If and when it catapults back above the line will bulls fell less inclined to join the party? For that reason it may have fuel to continue higher from a contrarian perspective alone. Ratio Chart Does Not Do It Justice: The chart below would have one thinking that the S&P 500 was still mired in a nasty downtrend. Truth be told the important benchmark just recorded its best 3 week return since the lows made in February 2016. It is bumping up right into the very round 2600 number, which it seems like even the martians are talking about in another universe. A move above can potentially catch even more market participants on the wrong side. Getting back to biotech, the CELG takeout played a role (BMY is even acting a bit better as it closes in on an upside gap fill from the announcement). AMGN sits just 5% off most recent all time highs. This overall healthcare action is happening in the face of a new House administration looking to take on drug prices too. Examples: Biotech names could be very volatile as we all know, but it does pay to remember what stocks did well before a market selloff knocks the group down. Big gains are made for a reason, and best of breed names may not lead as vigorously as they did prior, but they should warrant your respect and be included in any watchlist. A good example of this is the chart of NVCR below, and precisely how it was profiled in out Healthcare Report from 1/7. This name produced a 20 of 25 week winning streak the weeks ending 4/13-9/28/18 (beginning at very round 20 number), and 3 of the down weeks CLOSED in the upper half of the weekly range. It has registered a very powerful move, and the right side of the cup base is looking healthy, pun intended.
Crude Awakening For Oil Bears? Last week we mentioned that the energy sector, represented by the XLE, was either the best or worst performing major S&P sector ETF 4 of the last 5 years (the lone exception was the year ending 2017 which was the second worst). If recent YTD form holds, although very very premature, it has the potential to occur once again. As one can see on the chart below in 2019 it has behaved the best of the 11 groups. The XLE still remains in bear market mode lower by 22% off most recent 52 week highs, but it has given the overall market a boost along with it. The easy work has been done as energy was the most oversold, and many will rightfully question whether the nascent run has legs. Remain mildly negative as we know trends in motion tend to stay that way, more likely than they are to reverse. Services/Exploration Ratio Chart: The services plays are beginning to catch a little bid as the price of crude has witnessed a quick 10 handle jump. The consensus seems to be that this oil move should hold, and if not a move back below 50 would be very bearish. WTI is battling a bear flag breakdown retest and a downward sloping 50 day SMA. Some of the stocks in the service space have been decimated, most notably HAL and SLB, both still nearly cut in half from their most recent 52 week highs. Some relatively recent IPO's may assume fresh leadership, with names like DNOW and PUMP acting a bit better than their more mature brethren as of late. Examples: Below is the chart of NOV and how it was presented in our 1/8 Energy Report. We expressed our belief that a good risk/reward scenario was present at the 25 level that held once again as it did in 2010 and 2016. Both instances were also accompanied by bullish candlesticks, and while this month is just half way through, it has the look currently of yet another positive one as a piercing line is taking shape. Notice the strong moves in price as the 201o maneuver made its way to 70 eventually, and the 2016 bounce off 25 carried it close to the very round 50 figure. Of course these took years to develop, but keep in mind the big money is made sitting on your hands.
Nasdaq Line In The Sand: The Dow may be what many around the water cooler at work discuss, the S&P 500 is the benchmark most managers are judged against, but it is the Nasdaq that really determines the appetite risk of investors. When it leads, it tends to carry the other indexes on its back, and is why the majority of ones focus should be devoted to it. The tech rich average is at a make or break level right here. It came within 25 handles of the 7000 figure Wednesday-Friday, which also happens to be downward sloping 50 day SMA resistance. Add to that it is retesting a bearish descending triangle breakdown from mid December and this week was accompanied by bearish candlesticks. It is a tall order, and the next few weeks should give some clarity, but if the Nasdaq were to break through this area convincingly, the downtrend would be much harder to justify. Buckle your seatbelts. Software Acting Anything But: One must continue to search for names in the software arena, over the semiconductors (if one leans toward buying strength, as one should). IGV trades 12% off most recent 52 week highs, while SMH still trades in bear market mode lower by 20%. Among software there are many more names in solid uptrends with examples like TEAM TWLO and WDAY just 3% off recent all time highs, where among semiconductors one would be hard pressed to identify stocks less than 10% off their own. One however does have to be impressed with the price reaction by laggard SWKS, whose reaction after lowering guidance after the close last Tuesday was respectable. PLAB One Keep Watching: Some semiconductors still warrant a look from growth investors, and one can insert XLNX and AVGO into that conversation. Below is the chart of another "old tech" name, PLAB and how we profiled the name in our 1/4 Technology Report. It rose 8.3% this week in double average weekly volume, and Monday it broke above the 9.75 suggested entry. Next up for this stock is a collision course for the add on entry above an 11.10 trigger in a nearly 5 month long pattern.