Energy Energized: The XLE on a YTD basis is higher by more than 40% thus far and would be shocking if it was caught by year-end. This would be a very rare example of the sector being the best of 11 in back-to-back years as the fund rose more than 50% in 2021. Remember trends once in place are more likely to remain than to reverse. Of course, this group suffered a 29.8% drawdown top to the bottom of the range between weeks ending 6/3-7/15 but the space looks to be on the mend. In a very basic sense IF we are already coming out of a recession the PRICE of crude should have tailwinds going forward. From a PRICE perspective, the XLE is now back above its 50-day SMA for the first time in 2 months as it looks to build the right side of a cup base that found comfort at its rising 200-day SMA. On the charts below one can see how historically the sector comprises an average of 10% of the S&P 500 and still remains half of that presently. On the ratio chart, it looks like some mean reversion is already underway.
Regional Update: We love to compare how not only certain sectors tend to hold up against competitors but also subsectors within specific groups. Today we look at the regional banks against their money center peers. In our last financial note, we noticed the KRE outperformance, and it continues as of the present. But it has been doing so for some time now. On a YTD basis, its decline of 5% is half that of the XLF, and over the last one-year period the KRE is higher by 1% while the XLF is lower by 9%. Over the last 3 months, the KRE has jumped 15% and the XLF by 5%. I think we get the picture. And remember trends in motion tend to stay that way more likely than they are to reverse. PRICE is all we care about and in that regard, KRE is acting very nicely higher in 17 of 22 sessions since the completion of a bullish morning star formation on 7/15 that rose 3.3%, its best advance of the 17. It is now nestled up against its 200-day SMA and the XLF is improving as well. It is a welcome addition we are seeing in the broader overall participation of the market rally.
Trades List 8/12/22: VXF:
Fair Test: Nothing goes up in a straight line and if you are a bull you want to see how growth responds here after a nice run. You want to see stubbornness in giving up much of the recent rally. You want to see what it's made of. For the tennis analogy from Billie Jean King "pressure is a privilege". This way we can see if this nascent move is for real. For all the recent talk of more participation, breadth thrusts, and seasonality, it really all boils down to PRICE. And market participants who have put their hard-earned capital to work in growth should welcome the bear's challenge to see if the downtrend resumes from here. This will be a litmus test to potentially see how the rest of the year ends up. We spoke yesterday about how the semis are somewhat shrugging off bad news, software has demonstrated overall resolve. And the very bullish MONTHLY candle in July should see some pushback into it, but remember how positive it is going forward. Take advantage of any weakness in tech, specifically with the QQQ into the 319 area. Failure there would obviously have to question the bullish narrative.
Trade List 8/11/22: IWY: