Chartsmarter Insights

Mission Accomplished? When bad news is swatted and pushed aside, and translated as good news in PRICE action, that may be the most basic definition of a bull market. This weekend we heard of a spike in the virus cases, and the benchmarks started a bit lower, and went out near highs for the day, yet another bullish trait. It looks like the indexes are focusing on the lower death rates. Keep in mind Mondays have been very firm and this was the EIGHTH consecutive positive Monday (could say 9 to start the week as Memorial Day week saw Tuesday higher by .2%). And the Monday gains have been somewhat robust with all of the last 8 up in the 1% or more neighborhood. This Monday was able to CLOSE well above the very round 10000 number, and the longer it flies at that altitude, the less of a negative narrative one can attempt to portray. The header of this paragraph is "mission accomplished", and of course this could be premature as I would like to see four of five straight CLOSES above 10000. Let's look back at this statement on Friday. 

Nasdaq Fatigue? There must be some growing discourse about the state of the altitude of the Nasdaq presently. Even all the bulled up chatter about how quadruple witching Friday, was not enough for the Nasdaq to CLOSE above the very round 10000 figure. Keep in mind it has done that just one day, on 6/10 which was a doji candle, which are rare and often proficient in their accuracy to predict trend changes. Bullish candlesticks played a role in the bottoming formation for the Nasdaq with spinning top candles on 3/18 and 3/23. Could the same be said for the topping action this week? It is not only the round 10000 number, but the upside gap fill in that vicinity as well, that should give bulls at least some apprehensiveness. After all we are still about 700 handles above an upward sloping 50 day SMA, and couple that with volume during the 4 day winning streak to open the week was somewhat elevated. If that was unable to push the Nasdaq above this "danger zone", I am not sure what will. One still has to subscribe to the TINA theory, and the Fed back stop, but a prudent pause may not be just necessary, but productive.

Biotech Bonanza? There are two thoughts of play that come after a nice breakout, that depending on your bias you can spin it either way you want. Below is a good example of this with the chart of the XBI. One which I fully endorse is that the best breakouts work right away, and should continue on an upward climb in a rapid fashion. The bearish view on breakouts that stall, are that they are exhibiting signs of exhaustion and a ripe for a fall which could eventually become a bull trap. On the XBI I am a believer that this will break higher, as the ETF has done a three things I like. First it is holding the very round par number with just two CLOSES below the figure since finishing above it on 5/11. Secondly last Friday it bounced firmly off its rising 50 day SMA after its recent break above the double bottom pattern, often a good entry point. Thirdly it is shrugging off bearish candlesticks with engulfing candles on 4/28 and 5/26 and a dark cloud cover on 5/12. On its WEEKLY chart the XBI has the look of a bull flag formation. A break above 108.25 would carry a measured move of about 50 handles higher. 

Nasdaq Blockade: We wrote a few days back after last Thursdays slash, that we felt an upside retest of the move to the tune of 4% was likely, and it would be enlightening to see how the Nasdaq reacted there. Wednesday that came, as the tech heavy benchmark came within just 8 handles of 10000 once again before it reversed almost 1% from highs. Keep in mind there was a "cluster of evidence" there, meaning a few different important signals all converged at the same area. There was the gap fill, and doji near the very round number, and todays backing away from that level was telling. Could it have been the Russell that was lagging all day down nearly 1% (CLOSED lower by nearly 2%), when the other three major indexes were still green intraday that caused it? We shall see what kind of effect this has over the coming weeks, but I did state that the highs last week could be the ascent for 2020. I hope I am wrong, but PRICE action will be the only thing to truly let us know.

Industrial Surge: The industrials have been garnering plenty of attention, and with good reason as economic prospects brighten. The XLI over the last one month period, as seen on the chart below, is the best behaving major S&P sector performer out of 11. Putting aside the crazy action in the airlines, as the JETS fund has doubled from 11 to 22 in just 4 weeks recently, (nearly precise double bottom of 11.25 and 11.27 the weeks ending 3/20 and 5/15) other areas of the group have been trading somewhat more rationally. The rails have been acting well, CSX is probably my favorite as it hovers near the round 70 number which was a bullish ascending triangle breakout area (interesting how the rail plays in our neighbor to the north are flashing slightly better YTD returns with CP and CNI leading the way). But truckers and logistic plays are working, waste names, heavy construction stocks are all showing green shoots too. I think the move in the space still has legs as the XLI is still trading below its 200 day SMA. Demand stocks you are interested in however are ABOVE that line. Your capital deserves leadership material.