Chartsmarter Insights

Technology Bending? It seems that almost on an hourly basis we hear how the great rotation out of growth into value is taking place. Of course it is happening on a nascent basis, but is tech ready to just go away just yet? The ratio chart contrasting the Nasdaq to the S&P 500 below shows the relationship at a critical juncture. Tuesday did witness some more strength in the cyclical spaces such as industrials, and the finnies led the way with the XLF rising 1.2%. Even if this comparison, in favor of the industrials intensifies, it does not mean technology is just going to roll over and die. Semis via the SMH reside just 4% off all time highs, and software with the IGV is 6%, and did find support at an upward sloping 50 day SMA almost precisely today. There is no question technology is experiencing some instability, as over the last one week period as it is the worst performing major S&P sectors down 1.8%. But this group is also being affected by seasonality pressures. Most likely it is taking a well deserved, prudent pause, before a thrust into year end in Q4. 

Restaurant Revival? When the demise of the casual diner space chatter is incessant, sometimes it pays to look for some possible green shoots. As Mark Twain once said, "when you find yourself on the side of the majority, it is time to pause and reflect." Of course there was some bombshell news with MCD today, but some stocks like a WING PZZA or CMG have been holding up relatively well. If we dig down deeper into some of the periphery plays for clues, the chart below of an under followed name that supplies the restaurant industry in MIDD, gives reason for hope. From an earnings standpoint it has produced three consecutive strong reactions since the virus hit, with advances of 16.3, 8 and 7.9% on 8/5, 5/7 and 2/26. It is at a critical spot now at the very round par number, which was support dating back to early 2016. Bulls do not want to see this level become resistance. When the news seems to be dour all the time, think of new entrepreneurs with innovative ideas, not only potentially within the dining group, but outside as well.

Industrial Backbone: This week certainly had the feel of all the recent chatter that anticipated moves into more "value" oriented area. The barbell approach may start beginning to pay off. Looking below at the WEEKLY performance of the 11 major S&P sectors, shows a robust move from the industrials advancing nearly 5% (six of its last 7 WEEKLY gains rose by at least 4%). This move has been somewhat quiet, but the XLI is also the best acting group on both a one and three month look back period. On a YTD basis it still clearly lags, as it is just the NINTH best actor among the 11 major S&P groups (keep in mind it has never on a YTD timeframe been the top performer). Some of the areas that contributed to the solid weekly action were the airlines, which via the JETS ETF rose everyday this week jumping 7.8%. The rails put up some strong behavior with best in breed KSU up a combined 20% the last 2 weeks, both in active volume. And Friday afternoon came word that schools in NYC area, where I am from, will be opening this fall. That is a good sign, not just for parents in the tri state area, but for the continuation of the economy reopening, which should be wind at the back of the industrial space.

Size Matters: Concentration versus diversification. As the old adage goes "concentration builds wealth, and then diversification preserves it." Comparing the XRT to the XLY, could be a good example of that philosophy. AMZN makes up nearly one quarter of the XLY, while the top component in the XRT comprises just 1.8% of the fund. That would be the stock of Overstock, which has been on a monumental run as today was rejected near the very round par number, after trading near 2.50 in late March, not a typo. ETSY is the second largest holding in the XRT and that too has enjoyed a stellar run up almost 200% YTD thus far. As one can see from the chart below the XRT has been outshining the XLY, and we mentioned yesterday how many companies are adapting well in the Amazon era. Other names in the XRT top 10 holdings include GPS, which may have beefed up its online capability, but I just focus on PRICE action. Hard to believe but its chart has a bullish tint to it, as it records its seventh straight CLOSE above its 200 day SMA. There are better fish to fry in the space in my opinion, but it is good to see a healthy amount of names acting well.

Risk "Indifferent": Discretionary via the XLY is firmly the second best of the major 11 S&P sectors YTD up 12%. Most likely is not going to catch technology which is the strongest actor as it maintains a '73 Belmont Secretariat like pace over the field up 25%. The staples are behaving well higher by almost 2% in the middle of the pack. Over the last 2 months however they are keeping stride with their discretionary cousins. The death knell of consumer stocks in the Amazon era, has been greatly exaggerated, as there are a multitude of names higher by more than 50% YTD, including BIG CWH PTON WING FLWS BJ TSCO and PZZA to name a few. Some staple standouts include CLX and BYND, with the latter looking like it was breaking ABOVE a bearish head and shoulders formation until earnings today. The absolute beast in the space in SAM which has more than doubled this year, and nearly broke above a bull flag formation, until recording a bearish shooting star at all time highs.