Unconventional Wisdom: Stocks and yields tend to move in the same direction, or at least thats what the textbooks say. The correlation usually is there, but there are certainly times when the relationship is out of sorts. This seems to be one of those moments. The chart below of the 10yr Treasury yield was left behind by the equity train, as it stalled out on January 18th, and has never recaptured those highs, even as stocks continue their furious run northward. Keep in mind trends tend to persist more than they are to reverse, and the downtrend is easy to witness on the chart below. The 8 of 9 week losing streak between weeks ending 11/9/18-1/4 is completely understandable. What is not is the 4 of 8 week winning streak since, and this week is lower by 4.7%. The path of least resistance is lower. Foreign Finnie Force: Emerging markets are at a critical spot here with the EEM trading above its 200 day SMA for 6 weeks now, and the ETF has recorded a golden cross as its 50 day SMA has pierced above the 200 day. Below we see a chart comparing some of the international names, against some domestic heavyweights. Interesting how they converged last July, and then again in October, but after the latter occurrence the foreign players separated themselves and performed much better. IBN is nearly 3% away from a cup base pivot of 11.36 in a base nearly 14 months long. Deposit capital on the long term breakout. Examples: In the world of credit cards, their does seem to be two tiers. The starting line would be V, MA and AXP. All 3 names are right at 52 week highs (the back ups would be names like DFS, COF). Below is the chart of V, and how it was portrayed in our 2/22 Financial Report. A breakout above a 145.82 double bottom pivot was taken out on 2/22 and it as acted well POST breakout, important. On it WEEKLY chart it is looking to CLOSE above a 151.66 cup base pivot, which is very likely with just one session left in the week. The name currently trades at all time highs.
Will The Real Leaders Please Stand Up: When new bull markets emerge, new leaders will come to the forefront. That does not mean old generals can not participate, but the clout they once received will be limited. This is the dilemma facing the energy stocks now. Past winners like EOG and PXD, former best of breed players now sit 34 and 36% off their most recent 52 week highs respectively. The chart below shows the preference of safe, mundane names in 2019. The real divergence between the higher beta names, and the dull integrated plays began in late December. Is that a sign that market participants are not convinced these names are good investments? What the sector needs is some new leadership, some fresh blood and that seems to be absent at the moment. Crude On The Move: WTI surged nearly 3% Wednesday given a nice boost to the oil group. The XLE was the second best actor of the major S&P sectors higher by 1%. One should remember the nascent strength in '19, or dead cat bounce, whatever your bias is, the ETF is still higher by nearly 15% and ahead of other space such as financials, discretionary and communication services. Below is the chart of WTI, and I am not sure if it represents a stronger economy, weaker greenback, or seasonality. All I know is that the PRICE is sloping northward. The bulls can take solace that it is doing so in a gradual fashion, a positive trait. Examples: The big integrated plays carry plenty of clout in the ETFs. We know XOM and CVX comprise of well more than 40% of the XLE. In addition to their supertanker status, which means it is hard more them to make a real strong move in any direction but gives price stability, they do provide investors with juicy dividend yields. The chart below of BP, and how it appeared in our 2/28 Energy Report, yields 5.6%. Wednesday it jumped through a bull flag pivot and is gravitating toward a 47.26 add on in a double bottom pattern nearly 10 months long.
Surrendering The Top Spot: With the recent weakness in the industrial sector (worst performing group Tuesday by far, and second worst Monday), including a near 3% drop last week on big volume, technology has leapfrogged the group on a YTD basis. Is the space taking a well deserved breather, or is something more sinister in play? I fell like the former scenario is more likely, but remember predictions are meaningless compared to PRICE action. Give the XLI the benefit of the doubt as long as it keeps CLOSING above its 200 day SMA. That line was touched Monday and bounced, and the fact that is was difficult to get above in recent months, shows former resistance is now support. Trade accordingly. Chugging Along: There does not seem to be a pure play railroad ETF, which is surprising, but today we will look at a best of breed name in the arena. Below is the chart of UNP, a name just 4% off most recent all time highs, despite a recent 12 of 13 session losing streak between 2/20-3/8. The shallowness of the drop shows a failure that bears were unable to capitalize on. Now we know the best breakouts tend to work out right away, and UNP rose through a 162.10 double bottom with handle pattern on 2/11. It is not uncommon at all for breakouts to be retested for validity and that is just what happened here and it has bounced ever since last Friday. Continue on. Examples: The airlines have been a major drag on the industrial sector. There have been some stunning moves in the space with AAL down a precipitous 46% from most recent 52 week highs. It is down 4 of the last 5 weeks, with all 4 CLOSING in the lower half of the weekly range. Below is a name that had been looking decent in our 2/22 Industrial Report. UAL was sporting a bull flag that formed in conjunction with the very round 90 number. This chart emphasizes the importance of CLOSING prices as the 90 figure was taken out intraday on both 2/25-26, but none finished above the number. Respect the process.
Casual Diner Indigestion: Finicky consumers, most likely millennials, have been changing their eating habits for some time. It has affected the casual diners, some in a profound way. Some in the group have prospered while others have floundered. Below is a good illustration showing how some stocks are faring better than others. CMG and WING, have carved out nice niches, and YUM is on the ascent sniffing out par. Notice others have fallen by the wayside. JACK TXRH and DPZ (latter 2 fell on a strong tape Monday), all trading near 20% off their most recent 52 week highs, and are all near the UNCH line for '19 thus far, leaving a bad taste in the mouth of long shareholders. Building Group Building Confidence: The homebuilding group was on a firm foundation in the past rising 43 of 63 weeks ending between 11/11/6-1/19/18 rising 83.6% top to bottom. They endured almost as hard a fall for almost all of 2018. The ITB is still 15% off most recent 52 week highs, and is higher 8 of the last 11 weeks, with 4 of the advancers gaining at least 4%. The Bollinger Bands are "squeezing", which is implying a potential big move coming, the direction could be either way. Could another run akin to the 43 of 63 week win streak be in the cards? Examples: Price has memory, and those willing to do the work and find names that have held prior breakout, preferably LONG bases, can often be rewarded handsomely. Below is an example, and the chart of SEAS and how it profiled in our 3/6 Consumer Report. Here is the WEEKLY chart and it is right near the suggested pivot and break above a downtrend line. People are paying for leisure in certain ways, as consumers are becoming more picky how they spend their well earned capital. Dipping a toe in the water here, could be a good idea, pun intended.
Prudent Pause? The Nasdaq ended a very impressive 10 week winning streak that rose 22.8% from top to bottom. The 2.5% drop this week could be forgiven after a run like that, although it did occur at a critical level near the 7500-7600 level. Additionally it tired near the 200 day SMA, a line that has been influential since last October. The bearishness here seems pervasive, which is why I believe weakness will not be a large as many are predicting. But one should be somewhat troubled over the action in the Russell 2000, often a good leading indicator. The small cap benchmark dropped more than 4% this week, and even with that heavy drop it is still outperforming the other "big three" YTD as it has advanced 12.8% (Nasdaq is up 11.6, S&P 500 9.4 and the Dow by 9.1% in 2019). Leadership Evaporating? An abundance of chatter was focused on the semiconductors this week, but the real leader within technology for sometime has been the software space. It has held up better as the IGV is off just 4% from most recent all time highs, while the SMH sits 12% off its own most recent peak. A good explanation could be the lack of true generals in the semiconductors, with the lone exception XLNX (recorded a rare doji on 3/1 at all time highs). Looking at the weekly chart of the IGV, one can see back to back dubious candles with an engulfing candle this week, preceded by a doji candle the week prior. Add to that a quick breakdown in a cup base pivot of 206.76 and the bullish narrative is weakening. We know the best breakouts tend to work right away, (and the ones that do not often unravel quickly) and this weeks action suggests some softness going forward. Examples: We mentioned recently that this week was most likely a good time to think of shorting names that were left behind during the prior 10 week winning streak for the Nasdaq. Below is the chart of GRUB and how it was presented in our 2/25 Technology Report. The name is coming under fierce competition, and Uber Eats seems to be eating a good chunk of its lunch. PRICE action is telling investors that something was amiss as it still trades 51% off most recent 52 week highs. This week recorded its fourth double digit weekly loss, since the October swoon, falling 11.6%. Shareholders are losing their appetite with this one, pun intended.