Chartsmarter Insights

Bigger Not Always Better? We spoke yesterday of Amazons influence in the XLY, but in the XRT it is much less pronounced at just more than 2%. The more "equal weighting" in the XRT can work against it sometimes, in a diversification sense. Obviously the XLY is more dense, and if the top components are acting well, it will be unmatched in terms of performance. But the XRT is making a name for itself, and a possible comeback of sorts, with some top ten components like STMP W and ETSY higher by 130, 81 and 70% in 2020 respectively. The XRT is still down twice as much from its 52 week high at 16%, than the XLY, but momentum is in its favor over the last one month as the XRT has gained 18%, compared to the XLY up by 12%. It could continue to outshine, although more holdings in the fund will have to keep outperforming, compared to just AMZN and HD having to thrive. Or both sub sectors within discretionary can keep battling it out for supremacy. As I like to say competition in markets, and life, is a good thing.

Round Number Magnet: The top 2 components in the XLY, AMZN and HD, make up almost 38% of the ETF, and both have been on nice runs higher. It is hard to compare any retail peers, or for that matter many other names in the overall market however to Amazon. It commands respect, and although it was not immune to the market follies in February-March, it has since performed brilliantly up nearly 900 handles and trading currently at all time highs. It is higher 12 of the last 13 sessions, and has declined just 2 days in all of May thus far. The last 4 weeks have smartly digested the strong week ending 4/17 advance of 16.3%, and today it stormed past a bull flag pivot, and this break carries a measured move to the very round 3000 number. It has been compared to WMT, with the latter's move into online years back with its Jet acquisition, but this week Walmart has struggled after Tuesdays earnings reaction left a mark with a big negative reversal recording a bearish engulfing candle. It is hard to say FOMO with AMZN, as the name is higher by a robust 35% YTD, but not spectacular. The train however, could just be leaving the station on a long upward journey.

David Versus Goliath: With the emergence of the small caps recently, as the Russell 2000 gained more than 6% Monday, is it time to start looking at smaller cap healthcare names? The ratio chart below comparing the small cap PSCH to the larger cap XLV says it is still to be determined. But a break above the symmetrical triangle would suggest smaller caps should be overweighted within the space. On its PRICE chart, the PSCH trades in a very illiquid fashion, but a break above 120 would be very bullish for the group. It gives a good interpretation of what is going on, although I would focus my capital on names inside the ETF. There could be some mean reversion with the smaller names as the PSCH is now 16% off its most recent 52 week highs, while the XLV trades just 5% off its own yearly peak. The latter is doing battle with the very round par number, and has recorded some bearish candlesticks with an engulfing and dark cloud cover on 4/28 and 5/12 respectively. 

Sweet Spot: Where as recently as a couple months ago, some market chatter was centered around how many names were trading above their 200 day SMA (I believe we were in the high teens at the depth of the lows), fast forward to today and we have a few instruments that are trading at all time highs. One ETF that has been around for some time, and that has NOT achieved this honor, but is commendable, is HACK. Since climbing back above the round 40 number on 5/5, which was also its 200 day SMA, it has defended the figure very well. A lesser known fund is ESPO, which is trading at an altitude it has not seen before. Last week it demonstrated excellent relative strength rising 3.3%, as the Nasdaq fell 1.2%, and this was following the prior weeks 7% advance, making it even more impressive. Keep in mind these ETFs trade very small, in the neighborhood of about 100K shares a day, but looking under the hood to see the underlying components and one wants to be focused on them for investment opportunities. The ESPO counts NVDA and AMD as top 3 components, and do not sleep on NTDOY maintaining ground above the very round 50 number.