Chartsmarter Insights

Energy Bid: Energy continues to trade bullishly and the daily chart of the XLE shows how it has been resilient. For the last one year it has traded roughly between the lows 80s and mid 90s and we can see once again that it has penetrated the 90 figure in mid March for the fifth time in the last 6 months. Eventually this is going to make contact with the very round par number. On the WEEKLY ratio chart notice how the XLE is acing well POST break above the downtrend between Q4 '23 and the end of 2024. Above the 95.92 cup base trigger this would carry a measured move to 111. In our last energy note we spoke of the admiration we had for the CVX MONTHLY chart and March recorded a bullish hammer and is now within a couple percent of a cup base trigger of 171.82 (notice the nice digestion in the 2 1/2 year pattern following the big move from 2020 to late 2022. Top holding XOM is now approaching a cup base trigger of 122.22 and this would be a solid 1-2 punch for the whole group. Over the last one month XOM is outperforming up 7% as CVX has added 5%. COP, the 3rd largest component in the fund, is pressing up against the 200 day SMA to the upside and bulls want to see a firm break above unlike the stalling it did there, and the eventual failure last November. Its 200 day SMA is starting to flatline. The energy move may be gaining steam.

Modern Casual Diner Safe Harbors? Since roughly election day the has been a trio of restaurants that have provided some more "protection" than McDonald's, the previously obvious choice. The chart below shows the trifecta of EAT, DRI, and YUM providing more comfort over the last 100 days. Yum Brands has a nice look to it and is well above its 50-day and 200-day SMAs but with a wobbly overall environment would look for this to potentially form a double bottom with a low in the 149-150 area, and notice how it has outperformed cousin YUMC in China which speaks volumes. DRI will be interesting to see if the very round 200 number, resistance 4 prior times since February will turn into support after the 4% gap up Monday. EAT is the weakest of the three, down 23% from its most recent 52 week highs while DRI and YUM are 3 and 5% off their annual peaks, but could be potentially setting up a future double bottom base if it can climb above its 50 day SMA in the near term. Treat this more as a monitoring exercise as opposed to putting on new positions in this fragile market. Names that weather the storm best usually prosper the most when the group cathces its footing. 

Material Witness: The materials sector overall has been a decent performer up 3.5% YTD making it the fourth-best major S&P sector performer. The daily chart below shows it has been making some technical amends following the break ABOVE a bear flag. It recently recorded a bullish island reversal which gives good risk reward on the long side against the recent lows just above 84. Its WEEKLY chart shows the doji candle last week which is adept at signaling PRICE changes from the prevailing direction and it found a bounce near the lows of the big week ending 1/17 gain of 6%, its best move since the week ending 11/11/22 (some distribution has been popping up in February and March). Looking at some of the top holdings LIN at 18% is approaching a cup with handle pivot of 470.76 and recorded a bullish golden cross although there has been some negative RSI divergence. The second largest component in SHW may have registered a double bottom at 327 with a doji on 1/10. FCX, another top 10 holding, put up a bearish engulfing candle Wednesday at the 200-day SMA, and Thursday completed a bearish island reversal with the gap down. This could be a temporary ceiling for the name.

Round Number Salaries: Long-time readers of ours know our affinity with round number theory. Well, I can remember the announcement that unions won for UPS employees to receive $200K a year. Looking at the MONTHLY chart below of UPS we can see how the round numbers have played a role with PRICE. It looks ready to head back toward the very round par number sometime in Q2 after hitting a brick wall at 200 and notice now the secular 50-MONTH SMA is beginning to curl lower for the first time in a decade, an ominous sign. Is this a sign of a fragile economy, or is it company-specific? Probably a mixture of the two, but more the latter as this is almost 30% off its most recent 52-week highs. Its WEEKLY chart shows this has not recorded a CLOSE above the 50 WEEK SMA since August 2023, has been a big weight on the XLI for more than 2 years, and never crossed above the 60 RSI level. The MONTHLY ratio chart against FDX shows how this has given back almost all of the strong 2018-22 run and now is sporting a bear flag. I think this name will break forcefully below 100 later in 2025.

Bollinger Bands Telling the Story? Biotech has been a subsector within healthcare where losers tend to congregate. The space is not called the "widowmaker" for nothing. False pushes higher have occurred which inspire hope, but salty veterans know this is far from a viable strategy. Sure it will have its moments where bulls get excited but the sanguine feeling is often transitory. The daily chart of the XBI displays the troublesome theme as the fund was above the middle line in the Bollinger Band for just one session before undercutting Tuesday (by mere pennies). Is this bearish stance becoming too predictable? The bearish engulfing candle today suggests there could be some more pain into the lower Bollinger Band line near 85.30 before the next temporary jump occurs. Investors playing this space should be quick to take profits on any quick rallies, and any longs will be subject to the weight of the overall group's heaviness. Doji candles were recorded on 3/10 and 3/20 which suggest the ETF may be bottoming but market participants in this arena have been trained to not trust any fledging bottoms. I have always stated one must be open-minded to all possibilities within and select individual names have flourished inside. But take a balanced approach and remain underweight the group until PRICE demands your bullish slant. Bollinger Bands tightening are telling you to be ready for a big move either way. Recency bias tells us the move is likely lower.