Flipping The Switch: Markets can be confounding with their sector rotation, and is a good argument for the barbell approach. The move over the last one month period has been turned upside down precisely when one compares it to the YTD returns. During the last one month period, the two best major S&P sector performers are far and away the strongest with energy and the finnies. The XLE and XLF are up by 17 and 9% respectively (notice tech only group in the red). Perplexing is that on a YTD basis they are easily the worst actors, with the XLE and XLF off by 38 and 9%. The XLE may have a hiccup here as it tests its 200 day SMA to the upside for the first time in nearly a year. Last week the energy ETF jumped more than 17% in the best WEEKLY volume in at least 5 years. Can someone say capitulation? The XLF has traded in more of a tight range, and therefore does not have that rubber band feeling of being too stretched, and susceptible to a snap back reaction. The finnies are swimming upstream, in the face of animosity. Buffetts 13F just showed him reducing stakes in a lot of his bank holdings, with a near complete exit in JPM (he did add to BAC). Look for the group to grind higher, as it baffles the majority.
Dash For Trash: It is one thing when we hear a rising tide lifts all boats (stocks), but it is yet another when we see heavy laggards start to exhibit strong PRICE action. There is nothing wrong with being inclusive, but demand that each name deserves its lofty status. In my opinion when this occurs, it signifies frothy behavior, which could be a toppy or dangerous situation. Of course PRICE trumps all other indicators, combined in my book, so it would be prudent to wait for a negative catalyst, for me a bearish candlestick before one starts to short some of these weaklings. A good example of what I am talking about could be the action in KSS, up better than 20% this week alone already, yet is still 51% off most recent 52 week highs. FOSL is looking to put up back to back 30% plus WEEKLY gainers. PRTY has jumped 26% this week. Below is the chart of PLCE, which has been a serial under performer, but this chart looks like it may have made a positive trend change. It took its time grinding higher, and finally pushed above a stubborn area of resistance.
Lurking Nasdaq: With the recent travails of the Nasdaq, those with short memories and recency bias tend to forget it is still leading powerfully 11 1/2 months into 2020. I know things always look best at the top, and I am not discounting the Nasdaq's errant behavior as of late, but it is still higher by 33% YTD, while the Dow and S&P 500 have advanced 5 and 12% respectively. Software is somewhat responsible as the IGV is lower by 5% from most recent highs, but semis are holding their weight just 1% off its best ascent in 2020, via the SMH. Below we take an updated look at the "overall" tech feel with the daily chart of the Nasdaq. I must say I am impressed how it seems not to lose sight of the very round 12000 number, as it approaches it for the fourth time since the beginning of September. The benchmark is now less than 1% from the figure, and if it can catapult above 12000, a BIG if, I believe that will catch many off guard, and could set off a furious run into year end.
Biotech Bonanza: After advancing everyday this week, the XBI looks to have surpassed a double top near the round 120 number. Since surging decisively above 120 on 11/4 rising more than 6%, in the best daily volume in 5 months it has defended the level well, with a potential add on now above a bull flag formation. The XBI rose 4.3% this past week, slightly outshining the PPH which added 3.2%. Of course what ignited the powerful week was the PFE news Monday morning, and ironically that name ended the week 8% off its peak. Another vaccine name fared much better in MRNA, which CLOSED right at WEEKLY highs, gaining 23.4% (peers NVAX is now bumping up against a downward sloping 50 day SMA for the fifth time since this summer). Other names to watch in the space are BHVN, which jumped more than 12% this week, not long after breaking above a bull flag with a pivot at the 80 figure on 11/3. A turnaround play could be in store for BHC, which has been trading somewhat tautly between the 15-20 area for the last 7 months. A CLOSE above the very round 20 figure, could put the name on a course to the 30 number it hit almost one year ago.
Seasonality Issues: The XRT rose each day this week, until Thursdays drop of 2.7%. It is not showing any follow through after last week rocketed higher by nearly 8%. Among its top 10 holdings that are acting well include SFIX GPS and GPI. That being said both GPS and GPI are now in correction mode off 15 and 16% respectively from this months highs. On the seasonality chart below one can see that November is a solid month for the ETF, but after that it enters its worst 4 month period, judging by the funds action the last 5 years. Concerning on the XRT chart was the break DOWN below a bullish 3 week tight pattern, that formed the weeks ending between 10/9-23, that all CLOSED within just .40 of each other. That type of trade usually resumes powerfully to the upside, especially at all time highs. The following week broke LOWER by 8.4%. Of course if you want average returns you trade the averages (in this case the ETF itself). Looking for alpha choose from leaders within that might be affected by a drawdown in the group, and trade accordingly.