Healthcare Flexing Muscles: Although healthcare still languishes near the bottom of the major S&P sectors on a YTD basis (XLV currently 10th best of the 11 up 10.6% in 2019), it has made some hearty moves recently, pun intended. On a one month look back period it is the best of eleven, beating out technology by nearly one percentage point. It has received help from many different areas of the healthcare arena. Biotech, via the XBI is looking for its first 5 week winning streak since early 2016. Equipment names have been firm all year as the IHI sits just 2% off most recent 52 week highs. The healthcare providers ETF, the IHF, is now firmly back above its 200 day SMA. The XLV just broke above a double bottom base as seen on the chart below, and some of its components are demonstrating solid action. PFE is up nicely this week, by 4% and if it holds would be its best weekly advance in 9 months. MRK refuses to trade below its 200 day SMA, and of course BIIB put up a monster move last week although it did nearly fill in an upside gap from the 3/20 session. The overall group is firing on all cylinders for the first time in awhile, and many may declare its poor leadership for the current market environment, but PRICE action can not be denied. Round Number Roadblock: Stocks will often be rejected at very round numbers, or at least pause (most influential round figures are 20, 50 and 100), especially their first time doing so. Below is an illustration of that at the round par figure, although this name was above 100 previously. First let's give credit to NBIX for acting well on an overall shaky healthcare tape on a YTD basis. The stock is on a current 3 week winning streak that rose nearly a combined 10%, and on the WEEKLY chart, it sports a 14 month cup with handle base with a pivot of 102.61. Before that however one can enter with a CLOSE above the 100.25 trigger in a bull flag formation. It trades 15% off most recent 52 week highs, and for 6 weeks in a row, the weeks ending between 8/23-9/27, it was above 100 intraweek, but recorded just one CLOSE above par the week ending 9/20. There is a big tug of war going on and this line in the sand, could potentially see a robust move if taken out to the upside (REPORTS earnings 11/4 after close). Examples: The longer the base the greater the space, upon the breakout. One can also add that the trade will be more success prone. Below could be a good example of just that with the chart of ARQL and how it appeared in our 10/9 Healthcare Note. One can see the nearly perfect retest of a 10 month cup base breakout the week ending 10/4 that rose more than 18%, and recorded a bullish piercing line candle in the process. The next 3 weeks it gained a combined 14%, AFTER that big move. It is still 22% off most recent 52 week highs, and dealing with the very round 10 number, touching it the last 2 sessions. One can add to or open a position, in my opinion, with a CLOSE above 10 and that would have the right side of a potential cup base pivot of 12.32 to be watched into year end. The stock REPORTS Wednesday morning, and has had a nice run since a gap fill on 9/30 from the 6/13 session.
Semis Fully Cooperating: Last week the SMH rose by 4%, its FIFTH time doing so since the week ending 6/7. Monday is showing good follow through adding 1.5%. The last 3 times the ETF rose at least 4% in a week, the following week gained at least 2%. ZERO of the five however would be considered an accumulation week (decent gain in well above average volume). Perhaps those non believers will become so soon, and continue to propel this group EVEN higher. Earnings among stocks in the space have been mostly positive, with ON gaining more than 10% today. This week will bring more reports from the likes of NXPI AMD LSCC and QRVO. Below is the ratio chart comparing the SMH to the IGV, and there is no reason to believe the relationship should come to an end soon. And that is even with some better action among stalwarts like MSFT and TTD. Remember the chart below is a ratio chart, and BOTH the semi and software groups can act well on an absolute basis, although it will illustrate which one is acting better relatively. Misguided Directions? Contrasting two leading peers often leads to valuable clues in how to position capital. Trend followers will deploy capital to the stronger of the two, while mean reversion players may take the opposite approach. On a YTD basis GRMN has nearly doubled the 20% gain TRMB has seen thus far in 2019 (Garmin sports a dividend yield of 2.6%, while Trimble has no dividend). Not surprisingly on a shorter time frame GRMN looks better just 2% off its most recent 52 week highs, while TRMB sits 15% off its own recent yearly peak. Both charts however look decent, as GRMN which REPORTS earnings this week, is trying to break above a bull flag pivot of, and TRMB shows a bullish ascending triangle that aligns with both 200 day SMA resistance and the round 40 number. Whatever strategy you employ let PRICE action guide your process. Each of these stocks could perform well or poorly. Examples: Some "old tech" semiconductor names have reacted strongly to recent earnings reports, with two notable stocks going in opposite directions. INTC soared more than 8% last Friday, and TXN fell by nearly the same amount last Wednesday. Another old timer getting ready to release numbers is RMBS, and the chart below is how it appeared in our 9/25 Technology Note. It has see nice recent accumulation, despite FIVE consecutive negative earnings reactions, down .2, 3.7, 3.7, 4.8 and 5.8% on 7/30, 4/23, 1/29, 10/30 and 7/31/18 (REPORTS 11/4 after close). Like a true leader it is giving investors an opportunity to add to the stock on the way UP, and that would be a CLOSE above a cup base pivot of 14.39.
Lacking Energy: Leadership the last 6 months has been suspect for sure (as seen on the chart below), as very defensive sectors have led the way with the top 3 groups dominating the landscape. Perhaps that leaves room for technology and financials to have a surge into year end, as momentum names could possibly find some footing. Down at the bottom of the list, lagging by 10% behind the second worst group, is the XLE down sharply, and the only space in the red out of the major 11 S&P sectors. The XLE rose by 4.4% this week, its best WEEKLY gain in nearly 8 months, and it nearly doubled its next closest competitor in technology which rose by almost 2.5%. One can count the number of sessions the ETF has CLOSED above its 200 day SMA, a line which has been flatlining now for nearly a month. Prior to that is was downward sloping since last October. It now trades roughly 3% underneath that secular line, and there is no certainty that it will climb above. But this space which has finished the year the worst or second worst group of all the major S&P sectors 4 of the last 5 years, could rally another 10% from here and still end up in that position. Dead cat bounce on arrival? Juicy Yield: The big integrated energy names have seen bifurcated action this year. CVX has shown decent relative strength off 7% from most recent 52 week highs, while peer XOM is down a more noticeable 17% from its recent yearly peak. Below is the WEEKLY chart of BP, which is 13% off its most recent 52 week high, but this week soundly outshined both of the aforementioned names. It advanced 5%, while XOM and CVX added 2.3 and 3.4% respectively. Round number theory comes into play for BP, as the 40 figure has been resistance since mid July, but that potentially may be about to change. If it can clear that level, it puts the focus on an add on above an ascending triangle. A dividend yield well above 6% makes this name an attractive candidate in the energy patch. It will REPORT earnings next Tuesday before the open. Examples: Select pipeline plays have been outperforming the energy complex, and of course along with the capital appreciation comes big dividend yields (something investors around the globe are obviously clamoring for). Below could be a good example of that with the chart of OKE, and how it appeared in our 10/16 Energy Note. This week ended its first 4 week losing streak in nearly 2 years gaining 3.4%, and now on an impressive 7 session winning streak. Its 200 day SMA has been a nice cushion dating back to February of this year. A decisive move above its 50 day SMA can start the right side of a potential cup base, which would have an eventual add on pivot of 77.31.
Stout Seasonality: This time of year one often hears the argument that seasonality is a tailwind. That may be true, but perhaps investors have been catching on over the last few years and taking gains just a little bit earlier into year end. The chart below is a good illustration of this. Notice the last 4 years, the Nasdaq is a perfect 4 for 4 CLOSING higher than it started in the month of November. December happens to be a coin flip. Digging a bit deeper, software via the IGV has CLOSED lower than where it started in December FOUR out of the last four years (not a typo), and the SMH has CLOSED lower than where it began 3 of the last 4 years in December. The chart of the Nasdaq itself shows that it is encountering problems at the round 8200 number. The tech heavy benchmark has been above the figure 4 times intraday since falling below it on 7/31, but zero CLOSES above. Two of those sessions that were above 8200 intraday, recorded bearish shooting stars on 9/12 and 9/19, and an engulfing candle on 10/22. A decisive move and CLOSE above 8200 would be a big plus heading into November. Of course the elephants in the room that are that two 2 components in the index, AAPL and MSFT which are 1 and 2% off most recent all time highs will have a big say in the direction going forward. Can An Old Dog Still Teach New Tricks? Within the biotech space the "big four", for those that are old enough to remember, have been giving its group a boost. AMGN sits just 4% off all time highs, CELG has been taken over, and BIIB registered a huge move Tuesday. GILD reports tonight, and a big dog from the semiconductor group REPORTS tonight as well. Below is the chart of the grizzly veteran INTC, and it sports a good looking bullish ascending triangle pattern. This is not a recommendation, but a nice report after hours tonight could potentially give another boost to the semiconductor space. It has the same pattern as QCOM, which has an 80 pivot in its own triangle. Interesting tonight will be to see if Intel can break its pattern of three consecutive negative reactions having slipped 1.1, 9 and 5.5% on 7/26, 4/26 and 1/25. Examples: The semiconductors have had some soft news this week via earnings reactions. XLNX today fell .8% and this former leader is now 34% off most recent 52 week highs. It has lost ground 9 of the last 13 weeks, and is lower this week to heading into Friday. Of course TXN was the big disappointment and has slumped nearly 9% this week so far, and if that holds it would be the worst WEEKLY fall since the week ending 8/21/15. Below is one that was affected by the Texas Instrument earnings release, ADI, and how it appeared in our 10/21 Technology Note. It had been weak prior to that and is now 16% off its most recent yearly peak. This week is showing weak relative strength down 3.8%, as the SMH is higher by 2.6%. As long as this name trades below its 200 day SMA lean bearish.
Where Is The Money Flowing? Willie Sutton was once asked why do you rob banks, and his infamous reply was "because thats where the money is". Well investors could take a cue from him, and put a real focus on the financials, since that is where market participants are deploying their capital. The group has been the second best major S&P sector performer (behind just real estate) over the last one month period. Is it a nascent start to better things to come, or will the longer term trend endure as the XLF is just the 8th best actor among all 11 on a YTD basis? Of course we have received many earning reports from some of the big banks with JPM and C higher by 3 and 1.4% on 10/15. BAC rose 1.5% on 10/16, but the largest component in the XLK, Berkshire Hathaway, looks like it is registering its fifth straight lower high dating back to last December. Asset Manager Accumulation: While it is no secret that the S&P 500 is enjoying a nice 2019, measured against some of the leading asset managers it pales in comparison. The chart below shows the disparity with BX APO and CG all outperforming in a powerful way. I could have put CNS in there as it has enjoyed back to back 7% plus weekly gains and has advanced another 1.8% this week so far. We are all about PRICE movement, but what could be behind the shift? It is possible that there is a transfer underway back into active management, from the passive state we have heard about incessantly? And who says you can not have your cake and eat it too. Overwhelmingly that is the case, but with the niche group one is getting BOTH capital appreciation and yield. Examples: Not all boats/names have been affected positively by the rising financial tide. One has to look no further than former best of breed players MA and V which both have lost ground 4 of the last 6 weeks, and are following through lower in a strong way this week again. Below is another stock lagging, PYPL, and how it appeared in our 9/30 Financial Note. The stock now trades in bear market mode, 21% off most recent 52 week highs, and is lower 10 of the last 14 weeks. This week is off yet another 5% as it trades deeper below its 200 day SMA. The trend has certainly changed as it began 2019 with a 23 of 29 week winning streak. Perhaps a small consolation is it is acting better than SQ which is currently 30% off its own yearly peak. Tomorrow morning TWTR reports, and if that is a doozy expect the chatter that Jack can not run 2 companies simultaneously to heat up.