Amgen Alluring: For those old enough to remember the four horseman in the biotech arena, AMGN BIIB CELG and GILD, we know rough times have come over them. Of course CELG is being swallowed by BMY, but BIIB has made little effort to recoup much of the massive 34.3% weekly loss ending 3/22 and still trades 34% off most recent 52 week highs. GILD's chart trades wide and loose, hallmark bearish characteristics, and sits 16% off its most recent yearly peak. AMGN is clearly the best of the dwindling group, just 8% off its recent ascent. It is digesting a 14.6% combined advance during the 3 weeks ending between 8/2-16, with each week seeing firm volume, and each one stronger than the prior one. The stock put up a weak performance this week losing 5.9%, while the XBI ROSE 3.7%. Good risk/reward, in my opinion, is setting up here. Round Number Roadblocks: There has been some troubling signs among leading stocks in the healthcare space. That is never a good sign, but the group has never been very strong in a significant way. STE and EXAS fell hard below their 50 day SMAs on big volume on 9/9, dropping 6 and 10% in the process. We are big proponents of round number theory and par is the biggest of them all. Stocks that trade to that figure often hesitate and good examples of that were leaders RGEN and NVCR. RGEN gave even more of a warning things were likely to head south with a bearish gravestone doji candle there on 8/1. It now hugs the 80 figure. NVCR came close to the 100 number on 8/21, and both names now trade in bear market mode off 20% from most recent highs. Examples: The hangover from the CELG announcement just 2 sessions into 2019 is still being felt by BMY. It still trades 22% off most recent 52 week highs. There are some lukewarm signs from its chart, as it has advanced 6 of the last 8 weeks. Below is how we looked at the name and how it appeared in our last Healthcare Note from 8/20. The 200 day SMA, a very simple way of defining the trend, had given this name headaches as it traded below it for 11 months until recently. It did record dubious candlesticks at the very round 50 number Thursday and Friday with a spinning top and bearish engulfing respectively. One positive is that is ended a long series of lower highs and lower lows.
Diner Indigestion: Many have been talking about the rotation out of software recently, but some casual dining leaders took a punch to the gut recently too, pun intended. Mild hits were seen from MCD which sliced its 50 day SMA in big volume Tuesday, the largest daily trade since 2/1. It sits just 4% off most recent 52 week highs, but one wants to watch how that responds when touching that line if it occurs. WEN plunged more than 10% on 9/10, and CMG took a 6% haircut the same session. QSR is looking at a potential back to back weekly fall depending on Fridays CLOSE, and would be the first time that has happened since the beginning of March. WING is a rapid 18% off its most recent yearly peak. My opinion is the nausea should be short lived. Give the generals the benefit of the doubt until it is obvious it is no longer warranted. One to watch going forward could be PZZA. Below is the ratio chart comparing to former leader DPZ. Could be a new sheriff in town. Patience Bears Fruit: It is always important to build a watch list. One can never be too prepared. Three weeks back when AAPL was still 15 handles below a bullish ascending triangle pivot, we took some flack that we were way premature. There was no trade recommendation, just an illustration of what was possible. And the implications this particular name has on overall markets is huge. Many consider it a proxy for the Nasdaq, but many look at Apple not only as a technology company, but a consumer name. Its move into streaming content this week, was further evidence of that, and of course its watch and phones are plays on shoppers. The triangle has been taken out and notice how the 50 day SMA has held since the beginning of June. The round 200 figure provided cushion as well. This move can just be getting started into year end, although a moderate bearish counterattack candle was recorded Thursday. Examples: The footwear groups has witnessed some bifurcation within. DECK was unable to get above the round 180 number, in a pattern that resembled a bull flag, but once time carries on it made the formation failure prone. WWW is still in bear market mode, and below we take a look at the chart of SKX and how it appeared in our 8/19 Consumer Note. It did trade between the round 30-40 numbers recently, and a quick recapture of the 200 day in late August improved the complexion. The last 2 weeks rocketed 18%, and this week is following through higher by another 5.5%. The one caveat here would be the V shaped cup base that is now under construction. One would prefer to see a more rounded look, and a little more time to form.
Round Number Theory: Sentiment still seems to be lousy, and the bears have been unable to ignite much damage to the Nasdaq itself, even with software wounded. The tech rich benchmark sits just 2% from most recent 52 week highs, and with the abundance of negative chatter one would think the index would be at least 10% from its most recent yearly peak. It is not to say weakness can not develop, but lets give credit where it is due. In our last Technology Note on 9/5, I declared one day of CLOSING above the 50 day SMA was a good start, but wanted to see successive finishes. Well we now have 5, and one must respect the gap fill on 9/10 that bounced precisely off the very round 8000 number (S&P 500 CLOSED fractionally above 3000 figure). A cup base is now taking shape with a potential buy point above 8340. Glass Half Empty Or Half Full? Just a couple weeks ago we put up a ratio chart of the semiconductors compared to the software group. A bull flag had formed, but the breakout did not occur. Fast forward to today and the baton has been passed. Sure the software group sank with huge moves witnessed from ZS, which has now been cut in HALF in six short weeks. SHOP rose Wednesday, but is still reeling from the 15% drop the prior 3 sessions. Leader TTD slumped 80 handles top to bottom the last month, and former leader TWLO has dropped one quarter of its value in the same time frame. While software reverses some semis are stepping up, namely equipment plays like AMAT LRCX and KLAC. Should be an interesting year end. Examples: Purchasing stocks in a downtrend can be tricky. But they can also be very profitable if caught right. Below could be a good example of the chart of NTNX and how it appeared in our 9/5 Technology Note. Even with its powerful move lately it still trades 50% off most recent 52 week highs. Software has been taken to the woodshed in recent days, but after the huge 30% plus combined gains the weeks ending 8/23-30, it has jumped another 13% this week so far. The trend took on a bullish complexion after the reclaim of the 50 day SMA, which is now sloping higher for the first time in months. In my opinion the stock has room to the 200 day SMA, and if it does indeed get there, reevaluate then.
Energy Excess: The energy group is normally at the extremes of the major S&P sectors on a YTD basis. The chart below from the Novel Investor, shows this very clearly as 4 of the last 5 years, the XLE has been the best (just once in '16) or the worst performer with 2014, 2015 and 2018 down sharply and 2017 it was the second softest major group. It is sticking to the theme this year as it is the 10th best actor of the 11 sectors, up just better than 8%, although the ETF is still in bear market mode lower by 22% from most recent 52 week highs. The fund is looking for its first 3 week winning streak, up 3.2% this week so far, depending on Fridays CLOSE, since last December to this January period. How Defined Are Its Legs? Will the nascent rally in energy turn out to be a dead cat bounce? With the vast majority of names in the group beneath their 200 day SMAs, one should treat the move cautiously. The XLE on its PRICE chart was rejected at its downward sloping 200 day Tuesday, and it has been underneath the long term secular line for 11 months. It has recovered a bit more than half of the 6 week losing streak the weeks ending 7/19-8/23, but a big hang on the ETF has been XOM. The top component in the fund is lower by 18% from its most recent 52 week highs. More specifically its relationship compared to chief rival CVX has been awful. CVX sits just 5% off its own most recent yearly peak. The big question is how strong are the quadriceps of the overall energy arena. Will they be able to show muscle, and continue this move as shown in the ratio chart below against the S&P 500? So far so good, but remember trends are most likely to persist than reverse, so start your investments small. Examples: We often discuss the importance of PRICE confirmation on a CLOSING basis, and not to front run the pivot. Of course it is not foolproof, but it increase your chances of success. Below may be a good example of that with the WEEKLY chart of HCC and how it appeared way back in our 4/9 Energy Note. The coal name came to my attention as the KOL missed a 10 session winning streak by pennies Tuesday, but prior to that recorded a nasty 8 week losing streak and it still trades 24% off most recent 52 week highs. HCC never touched the entry point and as good as it looked, buying early would have been a drag on your portfolio as it fell precipitously. Give it credit for holding the very round 20 number well recently, but this is a no touch here in my opinion.
Finnies Swimming Upstream: The group has come into vogue recently, as the XLF is the second best major S&P sector over the last one week period, and the fourth strongest over a one month look back period (on a YTD basis it is just the seventh best out of the 11, but has advanced more than a very respectable 18%). The exchange names have been giving the overall space a boost, and some select insurance names are still hanging strong, although CINF did record a bearish engulfing candle Monday. Interestingly V MA and PYPL all suffered robust declines today, but were made up on the firmness of the traditional banks like C JPM BAC and GS all of which rose between 2-4%. High Yield Predicting Bull Move? Of course it would be foolish to look at the financial sector without discussing bonds and interest rates. The negative yield chatter has been deafening in recent months, and perhaps may have exhausted itself. The TLT did form a nice bull flag formation, but was unable to break above it on the daily, and the WEEKLY chart produced back to back spinning top candles which are adept at signaling if not a change in the prevailing trend at least a pause. Conversely he TBT was unable show any downside follow through after the ugly three week losing streak that slumped 21% between the weeks ending 8/2/16. Below is the chart of an instrument many look at as a "risk on" factor of the HYG. It suggests markets may have some room to run. Examples: In the example section each night in our daily note, we like to show how an idea became profitable. Today we will show how we were WRONG, which will happen frequently, but the key is tight stops to limit the damage. Below is the chart of LPLA and how it appeared in our 8/8 Financial Note (we have done just a couple finnie reports in the last 6 weeks, as we did not see the need to do so). On 7/25 the stock recorded a bearish dark cloud cover candle at the very round 90 number. That predicted some tough times ahead, which did materialize. We highlighted a buy at the near the rising 200 day SMA at 74. Our stop happened to be too taut, and the stop was triggered. The round 70 number ended up comforting the drawdown a couple times in August. The name is now on the mend and approaching the round 80 number as the right side of a potential cup base takes shape.