Retail Overview: The XRT rallied 3.3% last week, but that move paled in comparison to the S&P 500 rising by nearly 5%. One would have thought the ETF would have witnessed a more robust move. It did recapture the prior weeks decline of 3.4%, and it still looks heavy to me with plenty of distribution. The three heaviest volume weeks since the beginning of October, were losses of 5.3, 1.9 and 4.5% the weeks ending 10/5, 10/12 and 11/16. Give credit to its equal weightings near the top, as the 10 largest names comprise between 1.3-1.5% of the fund. FL looks solid as it carves out the right side of its cup base and WBA GAINED 10% in October. SBH even though it lost ground Monday, is still finding its groove above the very round 20 number and trying to keep pace with peer ULTA, and clearly outshining ELF. The latter is 48% off most recent 52 week highs, and has certainly been naughty and December which should be nice for it, pun intended, will most likely come up short. Some casual diners were left out in the cold with SHAK recording a bearish engulfing candle, and WING slipping more than 5% and shaping a bearish head and shoulders pattern with a rough neckline nearing the round 60 number. Game On for Gaming Plays?: There was solid leadership Monday as the markets rejoiced trade news over the weekend. Although energy captured the top spot, the number two and three gainers were technology and consumer discretionary. Looking within retail there was some bifurcation with toys being among the worst of the subsectors, and gaming being the firmest. Many names in the gambling group burst above their downward sloping 50 day SMAs, which could turn out to be trend changes, but let's give that scenario time to play out. Stocks like WYNN and LVS jumped 9 and 6% respectively. One should tread with caution as they are off by 41 and 28% respectively from their 52 week highs, although WYNN and LVS did reverse near key round numbers off 100 and 50. The reason I want to be hesitant to turn bullish on them is because one day does not make a trend. Give it some time above the 50 day to prove the move was legitimate, as to be todays action looks eerily similar to TOL which screamed above its 50 day SMA after a well received earnings report on 8/21. The only problem was that is as high as it went. Examples: One should always take note of solid relative strength, as well of weakness. The chart below of SBUX, and how it was presented in our 11/20 Consumer Report, is a good illustration of this point. It finished the month of October HIGHER from where it began, and that alone speaks volume. This is a chart of its daily chart, but if one were to peek at its weekly chart they would also see the powerful breakout above a double bottom trigger of 61.94 in a pattern that began the week ending 6/9/17 and broke above the week ending 11/2. The saying goes the longer the base the greater the space and this stock does also sport a dividend yield of 2.2%. The trigger has not yet been taken out, but one must admire the tight action following the 17% plus combined gain the weeks ending 11/2-9. A break above the bull flag trigger of 69.15 would carry a measured move to the round 80 number. Keep in mind measured moves are not science, and often has investors selling winners too early.
Overall Nasdaq Peek: I am a big round number theory fan and the last 3 days of the week ending 11/23, which lost a large 4.3%, all CLOSED beneath the very round 7000 figure. That looks to be behind it, but could the very sanguine news on tariffs over the weekend by a sell the news event, or put the market back on the right track? This coming week shall let us know. This past weeks gain of 5.6% was the best in at least the last 5 years, and there have been just two others 5% handle weekly gains since this past week and they were both advances of 5.3% the weeks ending 10/24/14 and 2/16/18. The intraweek lows were not undercut that much, and the Nasdaq went on to achieve gains from that point on. The tech heavy index recorded a bearish death cross this week, but the Russell 2000 did that as well and has gone on to register higher lows from October, something the Nasdaq was unable to accomplish. Its 200 day SMA has been flatlining for a month and that is used by many to determine the overall market trend. The reaction this coming week should be very telling. Cyber Security Names On Verge Of Big Move?: What a week it was with only three major S&P sectors outshining the Nasdaq's lofty weekly gain of 5.6%. Those included healthcare, technology and consumer discretionary and utilities, staples and real estate occupying 3 of the worst 4 actors. Software strength was hard to ignore with the IGV rising by 7.4%. The semiconductors, via the SMH, advanced by 6.4% and not to be outdone the HACK ETF, which monitors the cyber security names rose just better than 5%. When reviewing the top components of the fund I was surprised to see its representation among the top 5 dominated by "old tech" names. CSCO, FEYE, SYMC and JNPR were one, two, four and five. PANW, the 19th largest component in the ETF and 28% off most recent 52 week highs, this week put an end to a 10 week losing streak, even though it fell 3.9% CLOSING in the lower half of the weekly range. Below is the ratio chart comparing the HACK to the S&P 500 and it displays consolidation, which is admirable after some big drawdowns. The HACK daily chart shows a doji candle on 11/20, which often signals a change in the prevailing trend. CSCO looks solid just 3% off most recent all time highs as it approaches a 49.57 cup base trigger. Examples: The electronic components group remains strong, and one focused should be perked. We spoke of one of of favorites FN recently and it registered its fourth consecutive weekly CLOSE above the very round 50 number after a break above a long weekly inverse head and shoulders formation that aligned with the figure in a pattern dating back to February '17. The complexion of the DAKT chart looks better, although we do not usually like to look at names below the round 10 number, as it is now on a SEVEN week winning streak. It is now sports a good looking WEEKLY double bottom trigger there with a potential pivot of 10/21 in a formation 14 months long. Below is the chart of VSH and how it appeared in our 11/26 Technology Report. It dealt with a round number of its own in the twenty figure, and last week eclipsed it and now looks poised to break above its upward sloping 200 day SMA.
Ratio Chart Of Materials/S&P 500: The materials have had a discouraging performance against the S&P 500, but a nascent run higher may be on the table. Below is the ratio chart compared to the S&P 500, and it broke a downtrend line recently, and has since pulled back to the breakout, and a successful retest would be the first step in another leg upward. The XLB ETF fell 22 of 27 session between 9/21-10/27 before reversing at the very round 50 number. It is still below both its 50 and 200 day SMAs and 15% off its most recent 52 week highs, and has the look of a bull flag formation, but doing that below those line makes it failure prone. The fund jumped 6.1% the week ending 11/2, its largest weekly move since the week ending 10/9/15 (volume was the third largest since the week ending 8/28/15). If its move can keep going, its next legitimate entry point would be above a double bottom trigger of 61.26 in a base that began the week ending 1/26/18. Paper Cut, Pun Intended: Within the diverse space of the materials there have been some really eye popping moves. Many of the subsectors within have a good pulse on the genuine health of the economy, so it was puzzling to see the likes of IP floundering in the world on 3% GDP prints. It currently sits 32% off most recent 52 week highs, even AFTER a 9% combined move during a 3 week winning streak the weeks ending between 10/26-11/9. Below is the weekly chart, which showed some real concern following a bearish engulfing candle at all time highs the week ending 2/2, slumping 4% in double average weekly trade. That was the start of a bearish WEEKLY descending triangle that aligned with the very round 50 figure. It now sports a very nice dividend yield of 4.4%, and bounced strongly off the round 40 number the last week of October. The weekly chart shows it hugging the 200 day SMA, which for the moment seems like a brick wall. There is a possibility of a second weekly hammer candle in the last 3 weeks depending on tomorrows close. A move above could be bought.
Group Overview: The XLV has more than held its own during this recent downturn. On a one month period it is the best performing S&P sector higher by 7% (interesting enough is that its the financials that no one is talking about that are second best of the 11 major groups). On a 6 month look back it is also the best, this time edging out the stodgy staples, higher by nearly 14%, and it captures the top honors on a one year duration. To me the group has the best of both worlds, speaking on an overall basis, with the defensive, dividend paying pharma names, and the growth from some of the beta biotech plays. Wednesday on a very strong tape it held its own as well higher by more than 2% and the XLV chart is repairing technical damage very nicely. It has the look of a bullish inverse head and shoulders formation, but these work best in bottoming patterns, but it has reclaimed its 50 day SMA for the third time in the last 6 weeks. That type of gritty action has to be respected, as many others instruments would have rolled over. Medical Devices Perking Up: The IHI is one of the only healthcare ETFs that is above both its 50 and 200 day SMAs. That is something the XLV can brag about, but not the PPH, IBB and XBI. The IHI advanced 3% Wednesday and in the process recouped its 50 day SMA. Like the XLV it did not undercut its October lows, and it did bounce each time it touched the very round 200 number. It is now on a 5 session winning streak and the last four CLOSED in the upper half of the daily range. Three of the five top holdings in the fund are 3% or less away from their most recent 52 week highs, and notice how MDT met resistance at the precise very round par figure on 9/26-27. It feels like there is a magnetic force pulling back to that level again and if touched should break through to the upside this time. Examples: Most breakouts that occur will often go back and retest the move, to test its validity. Not all will, and we know that the best breakouts tend to work out right away, but if a break is successfully held that could often be a good sign. Helping the trade even more could be the fact that it happens in conjunction with other factors. Below is a good example, with the chart of PKI and how it was presented in our Healthcare Report on 11/21. The round number theory, and its rising 200 day SMA aligned with a previous breakout from a 79.81 cup base trigger originally taken out on 8/2. There happened to be six sessions that traded below the 80 figure, with just one CLOSE beneath in November. It is now on a 6 day winning streak and higher 8 of the last 9 and still sits 13% off most recent all time highs, and a cup base is taking shape with a possible add on trigger above 98.43. Special Situations: Elevated hedge fund interest in this name. HZNP is a pharma play higher by 40% YTD and 51% over the last one year period. Earnings have been mostly higher with back to back double digit gains of 16 and 10.8% on 11/7 and 8/8, a loss of 5.6% on 5/9 and a gain of 2.7% on 2/28. The stock is down the last 2 weeks by 5.1%, but was immediately preceded by a 2 week combined gain of 25%. The chart was unable to break above a 21 bull flag trigger, but that morphed into a cup base trigger of 21.32 which was taken out on 11/7. It is now below that pivot, but did fill in a gap on 11/15 from the 11/6 session, finding support at a rising 50 day SMA. Enter HZNP here just above the very round 20 number. Trigger HZNP here. Stop 19. Another name with heightened hedge fund interest, perhaps not the best sign, with more than 30%. NVTA is a biotech play higher by 54% YTD and 63% over the last one year period. Earnings have been mixed, but active, with rises of 17.4 and 11% on 8/8 and 5/10 and losses of 11.3 and 3.2% on 11/8 and 2/13. The stock is down 6 of the last 8 weeks and now lower by 24% off most recent 52 week highs. To be balanced it was preceded by a 7 of 8 week winning streak the weeks ending between 8/10-9/28 with 2 weeks that rose more than 20% and another higher by nearly 18%. Enter NVTA with a buy stop above its 50 day SMA at 14.10 and add to through a double bottom trigger of 16.17. Trigger NVTA 14.10. Stop 13. Peers HCA and UHS trading near 52 week highs. ENSG is a health care facility play higher by 106% YTD and 93% over the last one year period and sports a small dividend yield of .4%. Earnings have been mostly higher with nice moves of 12.4, 10.3 and 7.8% on 11/1, 5/3 and 2/9 and a loss of 5.3% on 8/3. The stock is lower the last 2 weeks by nearly 6%, but that is very acceptable given the prior two weeks before that rose by almost 28%, in the first and third strongest weekly volume in 2018 thus far. It has acted well POST breakout from a 40.19 cup base trigger taken out on 11/1, and now look to add to through a bull flag trigger of 46 which would carry a measured move to 57. Trigger ENSG 46. Stop 44. Healthcare name now off by 47% off most recent 52 week highs, much larger than most peers. AERI is a pharmaceutical laggard down 33% YTD and 34% over the last one year period. Earnings momentum is softening with three straight negative reactions falling 6.4, .6 and .4% on 11/7, 8/9 and 5/9 after a gain of 1.4% on 3/1. The stock is lower 13 of the last 18 weeks, three of which lost 10% or more, and this week heading into Thursday is down yet another 8.5%. Both its 50 and 200 day SMAs are sloping downward and short AERI on a retest of its bear flag breakdown at 41.25. The break carries a measured move to 29. Trigger AERI 41.25. Buy stop 44. Could be a tell that stock did not budge on a very robust tape Wednesday. MYGN is a biotech laggard down 8% YTD and 4% over the last one year period. Earnings have been mixed, yet energetic, with gains of 12.5 and 15.8% on 8/22 and 5/8 and losses of 10.5 and 5.5% on 11/7 and 2/7. The stock has declined 9 of the last 12 weeks, including a plunge of 32% the two weeks ending between 11/2-9, both of which were accompanied on the largest weekly volume of 2018 so far. It broke below a bearish head and shoulders trigger of 42, and now look to add to or initiate a short with a sell stop below a bear flag trigger of 30, which carries a measured move to 14. Trigger MYGN 30. Buy stop 32.25. Good luck.
Drillers Non Delight?: The energy arena has been a tough one to play with lots of volatility on display. The XLE traded in the upper 70s on three separate occasions in 2018, and comparing the two big drawdowns this year show glaring differences. The one in February looked a lot better as it traded in a tight weekly range between the weeks ending 2/16-4/6, following the vicious 2 week combined loss of 14.5% the weeks ending 2/2-9. That led to a 6 week winning streak from early April to late May, before another nice digestion on the XLE between late May and early October. The most recent implosion that shaved 14.5% in value off the ETF the weeks ending between 10/12-26, has been followed this time by erratic trade. That being said the XLE is now down 19% from most recent 52 week highs, while the OIH is down double the amount to the tune of 39%. Below is the weekly chart of the OIH, which even after this precipitous drop could see further weakness ahead. Ratio Chart of Small Cap Energy/Large Cap Energy: One would have to have been living under a rock to not be aware of what has transpired with crude this year. Before hitting an all time eye just below 77 on 10/3 the commodity has plunged. A price drop could have been expected after such a quick failure following a cup base breakout trigger of 75.37 on 10/1 (classic red flag for any instrument when a promising move falls apart rapidly). But some have been hit harder than others, and the chart below illustrates just how painful it has been being a member of the small cap energy space. Some of it certainly has to do with the robust dividends plays like XOM and CVX pay, both in the 4% neighborhood, as they are the two largest components in the XLE. On the flip side the PSCE, the small cap energy ETF has a less dominant weighting with its top holdings, although it is an illiquid vehicle. Comparing the price action among each of the biggest components, XOM is now 14% off most recent 52 week highs, while PDCE sits 47% off its own recent highs. Drill baby drill perhaps has come back to haunt the overall group as we are now the worlds largest producer. Examples: All stocks are not created equal, especially names within the oil and gas exploration and production group. Below is the chart of ECA and how it was profiled in our 10/29 Game Plan (we have produced little research on the sector as we were unable to find compelling opportunities until now). This name has been cut in half since the beginning of October, not a typo, falling 7 of the last 8 weeks, and this week is lower by nearly 4% already. The stock traded as low as $3 in January 2016, and can a retest of that level be in the making (the measured move on the ascending wedge is to $5.50)? Of course no one knows for sure, and volume has been capitulatory, as all of the last 4 weeks were accompanied by the largest weekly volume since the week ending 6/23/17. There is a little ammunition for both the bulls and bears and thats what truly makes a market.