Round Number Relevance: In our Tuesday Technology Note, we looked at the possibility that GOOGL was going to witness a bounce at the very round 2000 number. It was thrust into that area on the back of the ill-received earnings reaction from SNAP. At the moment that swoosh lower looks like it was an opportunity. Looking at the group as a whole via the major S&P sectors, technology is still firmly underperformed with the XLK down more than 20% YTD and just the ninth best of 11. But earnings reactions are starting to show resiliency, with SNOW and NVDA acting decently following Wednesday's aftermarket debacles. The SMH is higher by almost 4% this week thus far, which would be one of its best WEEKLY showings in 2022 so far. Below is the chart of the QQQ which is right back to the very round 300 figure, a level that was resistant in mid-2020, and support in early '21. Was the recent move below a bear trap from the 300-400 range? We will soon find out as it is right there at the CLOSE of trading Thursday.
Round Number Rescue: Monday afternoon witnessed an ill-received earnings report from SNAP which saw the stock Tuesday sliced by a more than a whopping 40%. This selling spilled over into "ad" peers, rightly or wrongly, although we know PRICE is always right and makes little sense to argue with it. Names like FB dropped 7% in sympathy with the stock filling in a gap from the 4/27 session, from earnings. TWTR, like FB, which is 50% off most recent 52-week highs slipped 5% as it looks to be breaking below a bear flag pattern, but the stock is in the middle of possible litigation of a Musk takeover. PINS gave up a quarter of its value alone Tuesday, and below is the chart of GOOGL. Perhaps this is the name that many feels were "undeservedly" brought down by the SNAP debacle. It is acting "better" than others spoken of in this paragraph now down 31% off most recent 52-week highs. I think this could be a good risk/reward situation on the long side as it trades toward the lower end of the range between the very round 2000-3000 figures.
European Strength: PRICE divergences are often clues as to future direction. Within the financial arena, some of this is starting to show up in the European banks versus the domestic ones. In the last couple of weeks, the EUFN has risen by 1.1 and 1.9%, while the XLF has dropped by 3.5 and 1.8% respectively. It is a small sample size but one to monitor. Both ETFs are off by 19% from their most recent 52-week highs and over the last one-month period the EUFN has "outperformed" down 3%, while the XLF has dropped double that at 6%. One thing that can be aided EUFN's strength is the robust dividend yield of 4.7% compared to the XLF's 1.9%. Top holding HSBC if it can hold the round 30 number it puts a future double bottom pivot of 35.34 in focus. BNPQY has the look of a nice bullish ascending triangle with a break above 28 carrying a measured move to 34. Give credit to the US banks today as JPM rose more than 6% on the best daily volume in more than 6 weeks. I just think at the moment it makes sense to overweight the European finnies.
The Week Ahead: Energy Rotation Underway? There are some circumstances when one looks back in retrospect that they see the light. Since we are on the theme of commodities I remember when the KOL stopped trading in December 2020, and since then coal stocks have soared overall. For example, CEIX was trading with a 5 handle when the ETF shut down and is now trading just above the very round 50 number, 10X higher. The tweet below that came out this week to me said this may be the top of the energy as BlackRock is about to embark on letting go of technology, which is at extremely depressed levels in favor of an energy group that has soared over the last couple years. We obviously will not know until well after the fact, but we may look back on this tweet as an aha moment.
Energy Exhaustion? No one is going to argue where leadership has emanated from in 2022, and for that matter 2021 as well. Energy has been the stalwart and so far the strength within has been fairly even. On a YTD basis, the XLE (basically CVX and XOM) has advanced by 47%, while the XOP has jumped 43% (on a one-year lookback period the performance has been similar as well with the XOP better up 59% against the XLE up 57%). Of course, there is a difference in the dividend with the XLE paying twice what the XOP does at 3.1% compared to 1.5%. But the chart below may be showing some fatigue with some bearish candlesticks after a gigantic run for the XOP. In 2022 thus far it cracked its 50-day SMA on a CLOSING basis for the first time on 5/9 but quickly recaptured it which is what leading instruments do. If that were to occur again so quickly again that would be a red flag and a possible reason for caution. A visit to the 125 area would be probable, with a potential measured move back to 102.