Sturdy Setback Or Turning Trend? What makes a market is that many have diverging views. If we apply that thought to the industrials versus the S&P 500 on a ratio chart, there is something for both the bulls and bears to argue their point. There is no question that the XLI and many of its components have lagged, as the industrials on a 6 month look back period are just the NINTH best performing major S&P sector out of 11. On its WEEKLY chart the XLI is being pulled toward the round 80 number, which would be the pivot in a long double bottom pattern that began in January '18, and the fund sits just 4% off most recent 52 week highs. BA will have a big say in its direction, as it is the largest component at more than 8%. It is still feeling the effects of the 7 session losing streak between 3/4-12 after the terrible airplane disaster. Last week CLOSED fractionally lower, but at the top of its weekly range, and the prior two jumped a combined 10%. Maybe the chart hangover is wearing off. Federeal Depressed: Since the month of May UPS and Federal Express have traveled in different directions. I have often mentioned UPS in the past has been treated like the red headed stepchild compared to FDX, but that is no longer the case. The ratio chart below contrasting the two shows this clearly. UPS did try and break above a cup base pivot of 121.40 this week on both Thursday and Friday, but was unable to CLOSE above it. FDX used to be considered a bellwether on the global economy, but should it lose that assumption? The technicals certainly say so. UPS is digesting an 8.7% earnings related jump on 7/24 well, and FDX reports earnings 9/17 after the close. The very round 150 number has been holding firm since late last December. If that figure does not hold that would be a break below a bearish descending triangle that began in September '18. Examples: The shipping space has been delivering the goods, pun intended. Below is a good example with the chart of STNG, and how it appeared in our 8/15 Industrial Note (full disclosure that entry was missed by mere pennies on 8/16). It is now resetting after a failed breakout, and did find support last month at an upward sloping 200 day SMA. It is quickly sailing toward the round 30 number, and has carved out another cup base pattern with a pivot of 30.87 (the very round 20 number gave it issues back in February-March). On its WEEKLY chart it has the look of a bullish inverse head and shoulders formation with a break above that same cup base carrying a measured move to the 45 number.
Spirited Shoppers: The consumer is alive and well. They have become more selective with their spending habits, but there are plenty of opportunities in the sector. It still maintains its third best performing major S&P sector on a YTD basis, higher by 24.6%, behind just technology and real estate. The XLY is certainly buoyed by all of the top ten holdings just single digits off most recent 52 week highs. BKNG, the former Priceline attempted to CLOSE above the very round 2000 number but came up just shy Thursday. The XLY is looking for its first three week winning streak since June, and today finished decisively above its 50 day SMA which has given it trouble the last month. This fund can be prone to potent moves as it advanced 25 of 29 sessions between 6/4-7/15. Durable Household Products Takedown: We do frequently mention trends are more likely to persist than reverse, but of course there are always exceptions to every rule. NWL may be one of them as today it recorded its first CLOSE above its 200 day SMA in years (besides the 12/3/18 session), and a couple more above the secular line could make the name investable again. Recently it registered its first back to back powerful positive earnings reactions in years too, gaining 14.2 and 13.5% on 8/2 and 5/3. TUP meanwhile has been well below both its 50 and 200 day SMAs since January, and has been lower robustly by 19.1, 9.3 and 27.4% after its most recent three earnings reports. Examples: Some retail names have benefitted from the homebuilding plays, which overall have acted well within the world of depressed interest rates. HD and LOW are both trading near all time highs. Below is the chart of another play in the space of FND, and how it appeared in our 8/22 Consumer Note. It has advanced 4 of the last 5 weeks, with all of the gainers up respectably by 13.5, 4.2, 7.3 and 4.7%, and this week has risen another 1.2%. It has broken above a 48.82 cup base pivot on the WEEKLY chart, and on the daily is just below the very round 50 figure, which is within a bull flag formation. A break above 50 would carry a measured move to the round 60 number.
Painting The Landscape With A Bullish Brush: We have spoke of the volatile nature of the Nasdaq, and of course others, during the month of August. This is a common occurrence, but 13 of the 22 sessions in the month moved by at least 1%. Keep in mind tops are often formed with frantic price action (bottoms just the opposite with smooth, gradual rounding trade), and September has started with both days moving at least 1% as well. A major stepping stone we discussed yesterday would be a few CLOSES above the very round 8000 figure. Some bright spots include names like ROKU which has advanced 15 of the last 20 sessions. AMZN showed good relative strength Tuesday rising on a soft tape. AAPL has responded well off the forceful drop to the very round 200 number on 8/23. Below is the chart of SNE and we like the way it is being magnetically pulled toward the round 60 number. We recommended this name in early August and this leader is doing what leaders do, giving an opportunity to add on the way UP. Software Feeling The Heat: Examining the ratio chart of the two heavyweight spaces in technology is always informative. Software has long carried technology, and that effort seems to have been giving other subsectors time to catch up. Both the SMH and IGV now trade a respectable 6% off their most recent 52 week highs, but the SMH trounced the IGV last week higher by 4.3%, while software added 1.2%. This week so far is more of the same with the SMH higher by 1.3% compared to the IGV up a fractional .3%. For sure there are still disappointments within, notably XLNX and CREE now off 28 and 38% from their most respective yearly peaks. But they are now overshadowed by names like AMBA KLAC LRCX LSCC CRUS and LSCC. We have become a services based economy, which pulls software names higher, but semiconductors are still in almost every product we come into contact with on a daily basis. Examples: "Clusters of evidence" is a term some technical analysts like to use when peering at charts. It occurs when a few different factors align, that make the trade a bit more bullish prone, IF a breakout were to occur. Below may be a good example with the chart of AKAM and how it appeared in our 8/30 Technology Note. First we liked how the initial test of a rising 50 day SMA held firm after a recent cup with handle breakout. Secondly there seemed to be a brick wall at the very round 90 number, with just the 8/1 session CLOSING above the figure even though several traded above intraday. That was until Wednesday, as the bulls pushed it through. It has the feel of a beachball being held underwater effect. Look for a possible move to par in the near term.
Round Number Pushback: We are big proponents of round number theory, and the current situation is that the Nasdaq is dealing with it now. Since cratering below the very round 8000 figure on 8/3, slumping 3.5%, it has recorded just four CLOSES above it. Revealing however was that none were consecutive. The tech rich index has shied away from the number, and one should anticipate a move to the upward sloping 200 day SMA, which defines the simple trend. A retest this month would be appropriate as it did in three month periods in March and June. If contact is made it will be important to see how the benchmark responds. The long term moving average was resistance last October, November and December. Resistance became support, and look for names that are bucking the negative action well. They will often be the strongest performers once, and if, the Nasdaq resumes its strong march northward. Security Outlier: The software security group, seems to be spoken about incessantly. Perhaps for good reason, but the space has not acted all that bullish. The HACK ETF is swimming underneath its 200 day SMA, and has the look of a bear flag. Last weeks soft advance of .5% ended a 4 week losing streak, but the prior 3 weeks ending between 8/16-30 have all CLOSED very taut, and that type of action tends to lead to explosive moves in the direction in which it formed. For HACK that is down, and FEYE which in the past was spoke of as a best in breed name, it can not be looked in that light any longer. After meeting stern resistance at the very round 20 number last November-December it now trades 37% off most recent 52 week highs. PANW is spooning the round 200 number in a bearish descending triangle pattern. A decisive break below the formation carries a 50 handle move lower. Bulls in the subsector most likely are not feeling secure in their longs, pun intended. Examples: The month of August is behind us and the year end run is about to begin. Staying small last month would have been a good strategy, but looking forward one should try and find names that acted well during the volatile late summer period thus far. One such example is SWCH, and below is the chart of how it appeared in our 8/29 Technology Note. Names in the home improvement space have been acting well, and this stock has traded very taut all year, a hallmark bullish characteristic in any market, but even more impressive given how 2019 has gone so far. Be patient here and wait for PRICE confirmation, as always on a CLOSING basis.
Earnings Deluge: The first takeaway from this chart comparing 10 retail names that reported earnings this week, is that select discount play are alive and well (except OLLI which cratered more than 29% this week after reporting and having issues with the round par number back in May). BURL jumped 16% and DG by 14% this week after well received reports. BBY trades in bear market mode down 22% from most recent 52 week highs, and flashed a warning after a breakout above a cup with handle trigger 75.74 on 7/23, unraveled quickly. Other notable developments are the travails of former leaders PVH and TIF reside 52 and 36% off their most recent yearly peaks. Tread carefully in the bifurcated retail sector. Beauty Battle Loses Peer: Looking good has its consequences, at least in the stock market arena. In my opinion there are three real names in the beauty space, not including REV which underwent a reverse split and now trades 44% off most recent 52 week highs. ELF should be given a nice mention as it tests it 50 day SMA for the first time following a recent cup base breakout from a 13.49 pivot taken out back on 6/25. But the two behemoths in the group, have taken a drastic turn as of Fridays CLOSE, after ULTA fell off a cliff after earnings. The stock lost more than a quarter of its value this week, on easily the strongest weekly volume in at least the last 5 years. Examples: The casual diner space has seen some strong names strut their stuff in 2019. They could include CMG WING and SHAK (having current issues at the very round par number). Below is the chart of JACK and how it appeared in our 8/26 Consumer Note. This one still seems to be dripping lower, although it did record a huge weekly gain of 20.2% the week ending 8/9. That rapid move was most likely short covering, as the previous 8 weeks were ALL lower. The chart was stopped cold at the very round 90 number on 8/14-15, and look for this name to gravitate back toward the 80 number where the gap emanated from. A move above the recent highs would negate the bearish thesis.