Group Overview: Credit in markets, like anything else in life, must be given its due when deserved. Healthcare is certainly a great case. It is the best behaved major S&P sector YTD, and when you hold that lofty position everyone is gunning for you. I may use the analogy of being the best tennis player in the world, as there is always someone looking to take your place. Now of course trends tend to remain in place, a lot more then they reverse, but when some technical evidence suggests a rest may be warranted, one should proceed cautiously. That may be whats happening within the space, via the XLV. Below is a weekly chart that shows it still may have put in a double top when attempting to take out a cup base trigger just above 96. More concerning to me is the volume trends and the erratic price action. The ETF slumped 5.5% last week in elevated trade, and the weeks ending 10/12 and 10/26 lost 3.4 and 4.5% respectively. I am not saying this group is going to undergo any meaningful correction, but after its big run this year it would be prudent for the fund, to perhaps trade sideways and gain some stamina before resuming its uptrend. Round Numbers Don't Lie: Before we get carried away with the recent action within some of healthcare, let's remember that the IBB is still deep within correction mode with the ETF now 15% off most recent 52 week highs. Buyers have vigorously defended the very round 100 number since breaking above the figure the week ending 6/23/17, that rose nearly 10% in the best weekly volume since then. Now I am believer that the more times a level is touched, the more likely it is to be broken, although many feel that to be the opposite. Notice on the chart below, courtesy of IBD, that the round par number HAS held firm many times since the bullish ascending WEEKLY triangle breakout in a pattern that began in September of '16 (it did achieve its measured move of 18 handles too). So far so good for the ETF, but if 100 were to give way in the near term, things could get ugly. Until that time, the burden of proof is on the bears to prove this is shortable. It has the look of a bear flag here, but without CONFIRMATION one should be hesitant to act. Examples: Within strong sectors there will always be names left behind. That action is often a tell. We know healthcare is still the best performing major group YTD with the XLV higher by nearly 12%, just ahead of the moribund utilities. Stocks that do not join in on the euphoria, should not be trusted. Below is the chart of MDCO and how it appeared in our Healthcare Report from 12/7. It is lower by 50% from most recent 52 week highs, inexcusable in a space where it should be benefitting from a rising tide. The bear flag formation was taken out to the downside this week and the measured move is to 16. One could on the potential way to the measurement could add to below the very round 20 number, which held on a CLOSING basis between 11/26-20 even though each session was below 20 intraday.
Group Overview: The discretionary space continues to find reversals near the very round par figure via the XLY. The 10/29 and 11/20 sessions, and today all came within one handle or less before seeing buyers step up. Now the ETF is far from out of the woods and still trades 12% off most recent 52 week highs. It is beholden heavily to AMZN HD and MCD, which account for nearly FORTY percent of the fund. MCD has more than held its own, but AMZN and HD still trade right at the bear market threshold of 20% down from highs. In my opinion one should focus more on the XRT, as it is much more diversified and Monday it recorded an excellent reversal like everything else registering a bullish hammer candle, which doubled as a harami. A top ten holding in the XRT, SBH has been acting well as it is one of a very select few that have been above BOTH their 50 and 200 day SMAs since September. Today it found support at its 50 day SMA showing a doji candle, and this could be a very smart entry with a tight stop. Below is the chart and how it appeared in our Consumer Report from 11/20. A move back ABOVE the very round 20 number would potentially bode a firm response in price action. Discount/Luxury Comparison: The recent market maelstrom has put into question a lot of myths. One we focus on here is that luxury retail names could be immune somewhat in a downturn as the wealthy are less effected. The chart below shows that may not be as prevalent as it once was. Stocks like KORS are down 13 of the last 15 weeks, and now 48% off most recent 52 week highs, WITHOUT undergoing a 2:1 split (poor attempt at humor). TPR is 35% off its own highs, and we were skeptical of the name change from COH just over a year ago. TIF perhaps the best of the aforementioned bunch is 40% off its own highs. It is down 9 of the last 10 weeks and has not recorded a week of accumulation since the last week of May. Now discount plays, are often seen as defensive in slides, are also slumping in sympathy with the extravagant plays. OLLI on the chart below is finally playing catch up as it cratered 22% last week, its FIRST double digit loss EVER. Most likely it is just a function of a lower tide taking all boats with it, but some of the moves have been breathtaking. Examples: The casual dining space has been a tricky one, like most everything else. Some names like CBRL, DENN and YUM have been very strong, and at the other end of the spectrum is a DFRG is now 64% off most recent 52 week highs. NDLS, which looked promising all year, until the week ending 10/26 saw a nearly one quarter haircut. True to perceived form, leaders in the space rose smartly today best evidenced by WING and EAT. Below is a name that should be put in the best of breed conversation LOCO, and how it was presented in our Consumer Report from 12/4. On both a daily and weekly chart, the action looks positive as it trades just above a daily cup base trigger of 14.50 taken out on 11/2. Peeking at the weekly chart, more important on the longer time frame, it is trading near a 14.95 cup base trigger in a 17 month pattern that began the week 6/16/17 and taken out the week ending 11/2. Respect the fact that just below is a level of comfort at a RISING 50 day SMA, and one must also admire that it never really undercut that line for long during a very difficult 2018.
Bad Apple, Rotten Core? For a week that started on a fine note rising more than 110 handles on Monday, it ended anything but. The week endured TWO 3% plus declines, the first since the week ending 2/9 which slumped 5.1%. The tech rich benchmark has fallen 7 of the last 10 weeks, and all seven CLOSED at or near lows for the weekly range. It was its SIXTH consecutive weekly CLOSE below its 200 day SMA, and last week recorded an ugly bearish engulfing candle finishing more than 500 handles from the intraweek high. Since the beginning of October the index has registered FIVE lower highs, and the volatility in continues to show is very indicative of topping action. It now stands 14% off most recent 52 week highs, compared to the S&P 500 and Dow which are each 10% off their own, and is less than 1% higher for 2018. AAPL easily the Nasdaq's largest component, is now 28% off most recent all time highs, and lower 9 of the last 10 weeks. The break below the round 170 number Friday could be significant. The downgrades of the stock seem relentless, but for once the bevy of analysts could be correct. "Old tech" Bull Trap: As investors we must always acknowledge when we are wrong and act swiftly. It is fine to be wrong but not stay wrong. When one is mistaken in a trade, which will happen often, move to the sidelines. Below is a good lesson on this with the chart of INTC and how it appeared in our Technology Report on 11/14. Let us be clear that we were WRONG about this set up, but I was confident that the more times this supertanker semiconductor would touch its 200 day SMA the better its chances of breaking through it. It aligned with the very round 50 number as well, but it did break above it this past Monday and CLOSED above the 200 day SMA too. The candlestick was questionable at best as it recorded a spinning top. The set up is a good illustration of why no matter how solid the potential looks one must be willing to sever their emotional ties to it. The stock fell more than 6% this past week and its cup base whose right side was under construction looks vulnerable at best. Examples: In the overall fragile environment we are currently in, look for names that are shrugging off the softness. To be clear we are speaking of recent firmness as the stock here LASR, is still 56% off most recent 52 week highs. It rose this week, albeit by just five pennies, but it was respectable relative strength as the Nasdaq fell nearly 5%. Below is the chart and how it was profiled in our 12/3 Technology Report (trigger has not be taken out as of this writing). Keep in mind this is a recent IPO so these tend to be under looked and under covered. The last 3 weeks have CLOSED very taut, all within just .17 of each other, and this type of coiling action normally leads to explosive moves. It recently broke ABOVE a bear flag formation, and moves that occur the opposite way they are expected to, often can be powerful too. The very round 20 number is coming into play with 14 consecutive CLOSES under, 12/4 finished precisely at 20, and the longer it spoons its 50 day SMA the more likely it is to break to the upside.
Healthcare Hammer: On a wild session where the Dow CLOSED 700 handles off its lows, and the Nasdaq bounced off the very round 7000 number registering a bullish counterattack candle, healthcare put in a mediocre performance finishing the 7th best of the 11 major S&P sectors. Some names like FATE were unable to extend winning streaks, with this one up 10 sessions in a row, but Tuesdays spinning top was some foreshadowing. To be balanced there was some M&A activity this week with TSRO being swallowed by GSK, jumping 58% on Monday. It was higher 10 of 11 days PRIOR to the announcement, with the lone down day on 11/28 recorded a bullish hammer off the very round 40 number. Talking about round numbers and hammers the XLV did just that today with a move off the very round 90 number. It was unable to break above the 96.16 cup base trigger we spoke about in our last Healthcare Report, but it may be resetting here. Bear in mind healthcare is still the best acting group of the major S&P sectors, so if this rally that began at lunchtime were to continue, this space should be a big beneficiary. Big Four Bifurcation: If you are as old as I am one remembers when the "big four" biotech names ruled the healthcare space. Sure they were volatile, but they garnered the most attention. Obviously there are not as relevant as they once were. Of course there will be some disparity in their YTD performance to be somewhat myopic, and the undisputed winner of the bunch is AMGN, which has risen more than 14% so far in 2018. The clear laggard is CELG which has fallen by more than 30% YTD. BIIB and GILD have hovered near the UNCH line, as BIIB is up just better than 1% and GILD is lower by nearly 3%. To me the most investable at the moment appears to be BIIB. It endured a 100 handle decline falling from 388 on 7/25 to 288 on 10/25, a sizable loss in such a short period of time. Some stabilization has begun as it filled in a gap on 10/25 from the 7/5 session, and notice that occurred at the very round 300 number. The stock quickly recouped its 200 day SMA and found support there with a bullish engulfing candle on 11/15, and another one on 11/23. Thursday it recorded a bullish piercing line candle, retesting both of the prior engulfing candles from 11/15 and 11/23. Enter with a buy stop, and as always a CLOSE, above the round 330 number and add to through a double bottom trigger of 358.51. Examples: Keep in mind the longer a pattern forms and subsequently breaks out, the greater the probability of the move being successful. Below is a good illustration of GKOS, and how it was presented in our Healthcare Report from 10/31. A relatively deep WEEKLY cup base trigger of 52.58 was taken out the week ending 8/31 which flew higher by more than 55%. The breakout was retested the week ending 11/9, in that seventeen month base. Since then it has acted well and we know the best breakouts tend to work out right away. It nearly doubled the XLV 7% weekly gain last week, and is now offering yet another add on opportunity (remember leaders give you add on entries on the way UP). Not surprisingly the round number theory is coming into play with the 70 number trying to act as a double top. That scenario would be negated with a buy stop above a 71.01 pivot.
Energy Group Yearly Returns: Energy has been quite a volatile performer in recent years as the chart of the last 10 years attests. More recently it has been even more true, as 3 of the last 4 years have been either the best or worst actor (with the only exception being 2017 where it missed being the worst actor to the telecom space by just 30 basis points) of all the major S&P sectors. This year with less than one month left, the XLE is keeping true to form as it is the second worst behaved group, as only the materials have fallen more (on a 3 and 6 month time period it IS the worst behaved of the 11 major S&P arenas). Therefore I would conclude that it is likely there are more losses in store into year end for energy. Not getting much attention is the action of the solar group, which should be weak given the energy drawdown as it loses its competitive edge. The TAN ETF broke above its 200 day SMA one month ago, a line it was beneath since June. It filled in a gap on 11/14 from the 11/2 session and I think a retest of the very round 20 number, if tested, would be a good risk/reward scenario. WTI Price Action Ready To Drill Higher? Crude has certainly seen a precipitous drop. That there is no question about. Many can debate the reasons why, the most logical I hear is the supply side of the equation with the US now the worlds largest producer. But any justifications for it come in a very distant second to PRICE action. That is all that really matters. That is how investors are paid so price should be and is omnipotent. Below is the daily chart of crude and it shows the failed breakout above a cup base trigger just above 75 in early October. It actually did breakout but the move lasted just 4 sessions before falling back underneath the trigger. On the positive side there have been some bullish, bottoming candlesticks with strong support, for the moment at the very round 50 number. There was a doji candle on 11/27 and both days of 11/29-30 both traded intraday below 50, but both CLOSED above the figure. Its weekly chart last week shows a bullish harami, which doubled as a spinning top (another candle that tends to predict changes in trend) that ended a deep 7 week losing streak. Bulls have their line in the "frac" sand as a reference point and stop. Examples: Even best of breed names lose their status, and although it is important to remember that new bull markets are driven by fresh leadership, one should always be cognizant of the strong players as they can also contribute powerfully on the way up. I remember in the not too distant past that the two generals in the space were PXD and EOG. Both have come under hard times as PXD is now 32% off most recent 52 week highs and EOG is 22% off its own. PXD was unable to make much headway above the very round 200 number with two CLOSES above the weeks ending 5/11-18 before falling back to earth (that was also a long cup base breakout above a 199.93 pivot in a pattern 15 months long). Below is the chart of EOG and how it was presented in our Energy Report on 11/28. The round number theory comes into play here as the very round par figure has not seen a WEEKLY CLOSE below in 2018, even though EIGHT weeks were below 100 intraweek. There was a bullish engulfing candle on 11/15 and play from the long side as long as that catalyst still exists.