All International Banks Not Created Equal: Domestic banks here have been acting very well, and it has given the financial sector, via the XLF, a healthy YTD return of 16%. That puts it behind only energy, and the XLF is doubling the gain of the communication services space, which is the third best major S&P sector in 2021. Banks around the world seem to be acting in tandem, with even names like DB breaking out. It recorded its first 5 week winning streak in years last week, and the round 10 number was instrumental as it was resistance through most of last summer. And it held firm when retested about a month ago. Canadian banks are flourishing with BNS TD and BMO all breaking above bull flags. In India HDB and IBN have charts that look attractive. When other regions are looked at and the charts look heavy, one should proceed with caution. Below is the chart of CIB, a former best of breed name from Colombia. It now trades 27% off most recent 52 week highs.
Glass Half Empty: The best investors I have known, always are more worried about the potential downside. They manage risk appropriately, and let the gains take care of themselves. I would not say they are a melancholy bunch, but a chat with one of them over the weekend, and they may have come away a bit unimpressed with Fridays rally. Give credit to the Nasdaq Friday, CLOSED near highs for the session, with a wide 500 handle plus range. But looking at a more "gloomy" glass half empty view, the tech heavy benchmark still has some work to do. At its lowest intraday level Friday the Nasdaq was 1000 points below its 50 day SMA, and we like to see names/indexes keep in close proximity to the important line. On the chart below we can see there will be some friction Monday as bulls and bears square off at the very round 13000, number, the scene of a head and shoulders breakdown. Will it end up being a bear trap, or over the neat term with the breakdown achieve its measured move to the 12000 figure?
Staples In The Portfolio Diet: "Risk off" has been making its presence felt short term. Will it last awhile? No one knows for sure, but PRICE action is certainly making a statement to be careful. There is no reason to try and be a hero here, as the market has made a substantial move in recent years, and some healthy digestion could be a good thing going forward. We wrote about "risk off" in healthcare yesterday, and today we try and convey how it looks in the consumer space. The most traditional way to look at that relationship within consumer is to look at the staples versus discretionary. For the first time in 6 months, the former is looking better than the latter. Breakouts are failing pretty quickly, and that is a red flag. Perhaps that is best exemplified with DKNG, which rocketed above a bullish ascending triangle on Monday, and has since acted very weakly. It is about 15% off intraweek highs. The ratio chart below is working in the staples favor, even with top components looking mortally wounded including PG WMT and COST. Many investors are going to be happy after Fridays CLOSE for some thinking after this weeks action. They may conclude it is time to exit, making the drawdown from this week accelerate.
Semi Standout: As the semiconductor group dances ever so gingerly upon its rising 50 day SMA, a lot is going on under the surface. Below one can see the softness in AMD and NVDA, both of which are down YTD. Each are approaching their 200 day SMAs, AMD is closer, but those lines need to hold if tested, as we know the old adage, "nothing good happens below the 200 day." This is again a time to be small, with a decent cash position, and watch names that are acting well during this tech fragility. One such candidate is Micron. On a relative basis MU is higher by nearly 20% YTD, while the last 2 aging generals are in the red. The stock is higher 17 of the last 21 weeks, and trade has been very taut overall, a hallmark bullish trait. If this market selloff accelerates in the coming days/weeks and this name trades into the low 80s, I think that represents good risk/reward.
Value Versus Growth: There seems to be incessant chatter about this debate, and over the last decade value was supposed to outshine growth, yet it never did on a consistent basis. It would for maybe a couple months, but the relationship would always go back in favor of growth. That may be changing, and this time "feels different". I know famous last words in investing. I just take into account PRICE action as my guide. Below on the bottom of the XLV chart, a ratio chart comparing the more mundane, mature healthcare names, look like they may be ready to bask in the sunshine against their more volatile biotech names. Keep in mind at the end of bull markets, and I am NOT calling for one, the value plays will start to outperform. The XLV over the last one month period is lower by 2%, while the XBI is down 10%. It is a short term view to take, but the XLV is also down 4% from most recent 52 week highs, while the XBI is 17% off its annual peak made just 4 weeks ago. Perhaps it is a signal to overweight "value" healthcare names over "growth", or just have a larger cash position to take advantage of when a bullish catalyst (candlestick pattern) happens to take advantage of an oversold biotech space. It could be months or in a few sessions.