No Material Weakness: The material sector is now the best performing major S&P group over the last one month period, and third best over the last 3 months. It is making a name for itself quietly, of course helped by gold which witnessed a huge breakout via the GLD above a 127.31 cup base pivot on 6/19. That is cooling off a bit with the spinning top and doji candles on Tuesday and Wednesday. Steel names have been weak, and select paper plays as well, most notably IP which has been in a steep downtrend since February 2018. Those who do their homework however see other glimpses of light with some chemical names. As always its a stock pickers game. If you want average returns you trade the averages. Those seeking superior returns should pursue individual names, with good risk management. Former Rivalry No More: A previous war between two specialty chemical names, now looks like a mismatch. CF ground out a nice, gradual bottoming pattern with a rough range between 40-45 starting last December (remember topping action is loose and volatile, and bottoming action should be just the opposite). That was taken out to the upside on 6/14, and the chart now has the look of a bull flag formation. It is attempting to record its first 4 week winning streak since last September, with the last 2 consolidating the 14% jump the weeks ending between 6/7-14. Longer term the right side of a cup base is taking shape with a potential pivot of 54.18. Examples: One would have to been living under a rock not to be aware of the big gold move. Below is a name that has been a beneficiary of the jump in FCX, and a chart we wrote for a client recently. Notice how the round numbers played a role in the name with 20 being firm resistance in the beginning of 2018, and the ten figure a floor in a double bottom the last 6 months, that also produced bullish WEEKLY candlesticks there. It is on a current 3 week winning streak up 16% in the process, and by another 2.5% heading into Friday. It is still closer to the round 10 number, and coming up on a big test with a 200 day SMA challenge.
How Quickly Things Can Change: Just last week we mentioned that healthcare was the best performing major S&P sector over the last one month period. That has now changed as it is now the SIXTH best actor among the 11 groups. The XLV is lower by 2.1% this week so far, and is testing the bull flag breakout from 6/18. The bulls can say that it is just giving back some of the current 3 week winning streak that has risen more than 7%. But giving back so quickly after the breakout is concerning, and overall YTD it is the worst sector performer, albeit higher by 6.8%. It is trailing the second worst actor, the energy space, by nearly double that as the XLE is higher by 12.8% thus far in 2019. Size Matters: Market participants are still favoring a defensive posture when it comes to the healthcare group. The ratio chart below shows just that, and investors should continue that stance. Now it has been more with the pharma plays as some of the bigger mature names have been falling a bit lately. AMGN seems to be failing at its declining 200 day SMA, GILD reversed precisely of the round 70 number Monday, and BIIB still is feeling the after effects of the 29% drop on 3/21. Even CELG, the last of the big prior four has fallen more than 6% the last 3 days, as it would need to divest a blockbuster drug to complete its deal with BMY. Examples: We are big proponents of round number theory, and CLOSING prices. Below is a good example of this with the chart of AMRN and how it appeared in our 6/20 Healthcare Report. This name has been building the right side of a decent looking cup base, but the suggested trigger of 20.20 was never taken out. In fact it turned sour on 6/20 after coming within just 5 pennies of the 20 figure. It can still materialize, as it bounced off 50 day SMA support today, recording a bullish hammer. It has been trading somewhat listlessly, but give it credit for not giving back to much of the 440% plus weekly move in late September last year. Patience is the key.
Transport Gloom: The industrials Tuesday recorded just their second 3 session losing streak in the last 3 1/2 months. That speaks to how well they have performed, even with the recent issues concerning BA and MMM, both of which still hover in bear market mode. Of course we can not leave out the real laggards in the room being the transports. The rails have held up well, but the services names in FDX and UPS have been off putting. The former is now 40% off most recent 52 week highs, and if one were to tell me the S&P 500 is just 1% off its all time highs with that name acting the way it has, I would not believe it. The airlines have not helped the industrials either, and below we take a look at the current IYT chart which is worrisome. Machinery Mismatch: The industrial machinery group, like all others has its share of leaders and laggards. Ratio charts separate the men from the boys. Names that have flourished this year include CIR GD and WWD. IR has been another solid performer higher by 37% YTD and 39% over the last one year period. On the chart below one can easily spot the disparity between IR and ROK. In fact ROK is LOWER by 3% over the last one year period. The ramp higher was caused by a 5 of 6 week losing streak from ROK the weeks ending between 4/26-5/31, that lost more than 22% from top to bottom. IR has CLOSED the last 3 weeks very taut, all within just .67 of each other. A big breakout is very possible depending on Fridays CLOSE. Examples: The saying goes the best offense is a good defense. It could apply to the group in the stock market as well as the XAR is higher by almost 30% YTD. The fund is higher 15 of the last 26 weeks, and 2 of the last 3 rose 4.9 and 3.2%. Below is a name benefitting from the love the space is receiving, AJRD and how it appeared in our 6/7 Industrial Report. It is higher 8 of the last 9 weeks, and again this week by .6%, after the prior week jumped 5.1%. The second time battling at the round 40 number has seen a decisive breakthrough. Expect this name to grind higher.
Enter At Your Own Discretion: They XLY has produced a nice run recently, as the fund gained 12 of 13 sessions between 6/4-20. Now is the hard part. The bulls can declare that the ETF is hanging strong just off all time highs, the bears would state a double top. Looking at the top holdings, HD followed through to the downside after last Fridays bearish engulfing candle today. MCD has recorded FOUR bearish engulfing candles alone in the month of June, although it has the look of a bull flag pattern. Of course the 800 lb gorilla in the room AMZN looks strong just below a double bottom pivot of 1917.61. Let's take a look below at the actual XLY itself. Take Me Private One More Time: Sometimes when comparing rivals, one notices there is no rivalry at all. In the retail arena TGT has just squashed KSS, which is now lower by 45% off most recent 52 week highs. Below is the ratio chart with COST compared to BJ. It shows a stunning contrast, and this chart really accelerated when COST started June off on a 14 session winning streak. Last Friday did record a bearish shooting star at all time highs, but it may have been affected by quadruple witching. In addition BJ is a name that has been taking private a few times and reemerged as a public company, not the most bullish trait. Others that come to mind would be MIK or PRTY, both which now trade 60% off their most recent 52 week highs. Examples: Price action in my opinion is omnipotent. Often it will move a stock well before a news event comes out. Below is a good example of just that, with the chart of SBH and how it was profiled in our 5/30 Consumer Report. This name has been a laggard for a long time and after todays plummet of 17%, it trades nearly one half off its most recent 52 week highs. The stock ran into trouble with a very bearish large filled in black candlestick on 2/5 right at the very round 20 number. Before todays cratering lower it lost ground 8 of the last 11 weeks. Sell weakness and buy strength.
Software Leadership Grip Teetering? The battle between the semiconductors and software rages on. To be fair the combat regarding the two important groups has been one sided for some time. Software has reigned supreme, and to me that grip may be softening. The semiconductors have the burden of proof, to show they deserve to be mentioned in the same sentence as software. The ratio chart shows perhaps the semis are looking to make a stand, as premature as it may be with a recent higher low. Looking at individual names in the chip space it is difficult to see a real leader, but the ratio chart may keep heading higher by default as software names look toppy. Not Such A "Secure" Name: Probably one of the better ETF symbols out their HACK, was all the rage not to long ago. The hype has settled down, but the importance of cyber security will never go away. The fund is digesting a 10 week winning streak that started 2019 off, and I was surprised to see CSCO as the the top component. Some names have not been acting well, with both PANW and FTNT in bear market mode down more than 20% from their most recent 52 week highs. Below is a real laggard in FEYE, now 29% off its most recent peak after having issues with the very round 20 number last fall. Examples: We have always mentioned how very taut, tight trade is a hallmark bullish characteristic (and the opposite wide and loose action is a bearish trait). Below is a good example of that and the chart of ROKU and how it appeared in our 6/17 Technology Report. This name has acted well versus technology peers throughout 2019, and now happens to be defending the very round par figure well. Leaders give one an opportunity to add on the way up, and this stock did just that breaking above a bull flag pivot near 85 last month, AFTER taking out a double bottom pivot of 71.40 on 5/9.