Chartsmarter Insights

Climbing The Ladder: Since the depths of the February-March meltdown lows of roughly 3 months ago, below we have a look at how each of the major 11 S&P sectors has performed. The energy group could be a dead cat bounce, as YTD it is still lower by more than 30% and easily is the worst actor of the bunch. Consumer discretionary however has been a star, advancing 24%. Sure a lot of that has been the resilience and tenacity of AMZN, and there has been a "dash for trash" too, but let us give the space credit where it is due. From recreational plays like a WGO YETI PII or THO, to electronic plays like an IRBT or SNE, to international internet retail plays like JD or VIPS, or discount plays like OLLI or DG, or casual diners like CMG DPZ WING and PZZA. I think one gets the picture. Now I am not here to speculate on what is responsible for the groups resurgence, whether it could be stimulus, boosted savings rate, etc, but the PRICE action is indisputable, and many will look for groups that have lagged, but I would rather put my hard earned capital on the area that has proven itself already. Remember trends to tend to persist, more likely than they are to reverse, and go a lot further too. Trade accordingly.

Doji Drawdown: "When the facts change, I change my mind. What do you do sir?" A quote credited to John Maynard Keynes, and he could have been talking about the action in the Nasdaq this week. Round number theory is something I have a strong affinity toward, and of course the tech rich benchmark CLOSED above the 10000 figure on Wednesday, and it recorded a doji candle that day, which are adept at signaling a potential change in the prevailing trend. We have mentioned the round number roadblocks with Bitcoin, Tilray, and one other I came across today was the TVIX which hit a brick wall at the precise 1000 number on 3/18, registering a spinning top and the next session a bearish engulfing candle which resulted in a nearly 90% drop. Keep in mind the V shaped base the Nasdaq has displayed are failure prone, and I think one has to look at the index in a cautious way going forward. We spoke it bullish tones on how the major averages are rare to witness gaps, and since the March lows we saw several gap ups. Well following the gap down on 2/24 there were others on 2/27, 3/6, 3/9 and 3/12. Could this be the start of something ominous once again?

Risk Appetite: So far so good in regards with the Nasdaq not backing off hard at the very round 10000 number, and give it credit for losing ground just one day in June thus far. We often hear about "risk on" or "risk off", and the former applies in many different ways. Technology acting well is a clear sign of a healthy risk appetite, and with the group easily the best major S&P sector performer in 2019 by a wide margin (via the XLK), and well in front again in 2020 is a positive sign. Curiously the behavior of the Russell 2000 has been an indicator of risk, and today with the Nasdaq up 1%, the small cap benchmark fell in the 2% neighborhood for the second straight session. Yet another gauge of risk is the VIX, and the chart below shows this instrument is at an inflection point. In my opinion it needs to hold its upward sloping 200 day SMA. The Nasdaq continues to climb the wall of worry, with the 10000 number, the other 10 S&P sectors that would love to grab the top spot, and other factors. New all time highs are to be embraced, not cause for consternation. How long will it last? Most likely a lot longer than we think.

Round Number Roadblock? Long time readers of mine are familiar with my affinity with the round number theory. On a very visible scale Bitcoin reversed awhile back at the 20000 number, or a TLRY had a sensational move and precisely was swatted back at the 300 figure in late 2018. Of course the S&P 500 visited the 3000 figure recently breaking above it on 5/27, and then proceeded to retest it just 2 sessions later for validity, as has not looked back. Below is the chart of the Nasdaq and will it be able to jump above the very round 10000 number in the near term? Tuesday intraday it traded less than 3 handles above the figure before backing off slightly. The next week or so will be very telling as the bulls and bears fight it out at that level. My gut feeling is that we go higher from here, as many still question this rally, and there is still a ton of cash on the sidelines. Plus with mega cap plays like AAPL AMZN and MSFT each hitting all time highs Tuesday, the odds are in favor of the bulls as trends are more likely to persist than they are to reverse.

"Material" Gains, Pun Intended: The materials have been quietly making a name for themselves, as gold and silver miners have been acting well, but other sub sectors within the space are pulling their weight as well. Steel names are beginning to perk up with the letter X, which I frankly never thought I would write something positive about again, recording two straight CLOSES above its 200 day SMA (had been below that line for well more than a year), and the very round 10 number. FCX also shed its single digit status just last week as it too vaulted above its 200 day SMA. AA in the aluminum arena surged above the 10 figure last week as well, and it begs the question. Are the big laggards attempting to play catch up, and is it a bad sign? Monday the XLB was the "worst" performing major S&P sector up two pennies, but on both a one and three month look back period it is the fourth best actor of eleven. The chemical names, very important to the economic cycle have been acting well, and even the paper names are showing green shoots.