Chartsmarter Insights

Sector Surge: The XLE on a YTD basis still is still dead last within the 11 major S&P sectors, still off by nearly 34%. Its next closest competitor, is the financials which are off in the neighborhood of 22%, so one can easily see the discrepancy. However, the group has enjoyed a powerful move, as seen on the chart below on a one month period, now lagging just communication services, discretionary and technology, having advanced nearly 8%. Some may question that type of recent "leadership", but bulls looking down at the bottom of sectors would see mostly "defensive" groups residing in the bottom 4, with real estate, healthcare, utilities and staples lagging. The XLE is now more than 40% off most recent 52 week highs, and dealing with the round 40 number, which is also the top of a bearish rising wedge pattern. My feeling is that it will try and fill in the gap to the upside from the 3/6 session near 42. The two elephants in the ETF in CVX and XOM have both already filled in those gaps, and CVX has the look of a bull flag, but forming underneath the 200 day SMA makes it failure prone.

Industrial Misconceptions: The Dow Jones "Industrials" have put up some strong gains as of late with consecutive 500 point gains. Of course those gains are just better than 2%, but the benchmark has seen some nice capital flow into it recently (912 point gain on 5/18). Over the years the index is not representative of the industrials anymore, but rather technology with AAPL CSCO INTC IBM and MSFT. Consumer names like MCD WMT NKE and DIS, and financials like JPM AXP GS and V. But we must pay attention to potential rotations, and it is still very early, but nascent moves into the Dow over the last 5 days shows a move of 4%. Compare that too the Nasdaq and S&P 500 which have gained .4 and 2.2% over the same time period (the Russell 2000 has advanced 6.6%!). Just over a year ago BA was the highest priced name in the benchmark (it is a price weighted index), it now has 9 of the 30 with stronger prices, but it still carries some influence. Let us take a look at the chart below and see if it can give the Dow a boost going forward.

Software Heavy: When the best acting sub sector within technology is looking toppy, it would be wise to pay attention. The group has made the V shaped recovery on its own, and overall there were many doubters if the benchmarks themselves could do it. So let us give software credit in that regard. The top 3 components in the IGV today, CRM ADBE and MSFT, all recorded bearish engulfing candlesticks at critical areas on their charts. The IGV did the same, and the chart below shows a potential double top. It is impressive that the fund was able to shrug off a bearish engulfing candle on 5/12, which created a handle in its cup base, but another one Monday in such close proximity is worrisome in the short term. The primary trend higher is still well intact, but a prudent pullback may be upon us. ORCL was made slight lower highs since April, and today yet another top 10 component slipped in ATVI although it did fill in a gap. The markets have recorded a very robust gain off the March lows, and the ascent of the move has fatigued its quadriceps. Time for a little stretching, rest and relaxation. We will know soon enough if this nascent move higher has legs, pun intended.

Healthcare Hiccup: It feels like a long, long time ago when healthcare, via the XLV was briefly the best performing major S&P sector in 2020. Currently it is now the third best on a YTD, trailing both technology and communications services (both of those two groups are now positive this year so far). For the week it was the only major sector in the red, falling fractionally by .8%. The XLV continues to struggle putting space between itself and the very round 100 number. All of the last six weeks were above 100 intraweek, but only three have managed to CLOSE above par. It could be given some slack as the 4 weeks ending between 3/27-4/17 stormed higher by a combined 25%. The more "risk on" cousin, the XBI, however is having no issues with the 100 number, as it added 3.3% this week, and its second straight CLOSE above the figure. Below is the ratio chart that shows that until circumstances change, your capital should be deployed into the biotech generals.