Software Surge, Versus Semis At Least: Ratio charts are a great way to measure how different instruments are acting against each other. Sometimes however the strength in one is magnified by the weakness in the other. This could be the case in the chart below, contrasting the software and semiconductors. Looks sometimes can be deceiving, as here it looks like the software space if screaming higher, but names like SPLK ADSK and ZM all fell hard last week. The SMH is undergoing big distribution the last 3 weeks, and it was not helped by large downside drops last week in ASML AVGO LRCX QCOM. Perhaps software is not as strong as it seems and earnings this week by giants ZS OKTA WDAY VEEV and PANW to name a few will be telling. "Old Tech" Titans Bifurcating: The tug of war between AMD and INTC has been ongoing for decades as they vie for semiconductor supremacy. Of course over the years other leaders have made their presence felt like AVGO, XLNX and NVDA (each now down 21, 28 and 51% from their respective highs). AMD now trades 15% off its own highs, while INTC is now 27% from its recent peak. The latter is currently on its first five week losing streak in more than 5 years. On the AMD WEEKLY chart one can interpret it as a cup with handle, or bull flag. A break above latter scenario would see the stock nearly double as its measured move. Examples: The semiconductors as a whole have been acting a bit soft and getting softer. The SMH registered its second straight CLOSE below the very round par figure and its 200 day SMA, and trade has been elevated during the downdraft. Below is the chart of AMD and how it appeared in our 5/16 Technology Report. This illustrates the importance of CLOSING prices as our stop was 26, which held nicely on 5/23. This name surged today, and the round number theory comes into play here as 30 stopped it cold on 4/3. A challenge and break above that level now however would be a WEEKLY cup with handle pattern more than 9 months long.
Defensive Posture: The staples group is off to a strong first half of 2019, up nearly 14% YTD, the seventh best performing major S&P sector thus far. On a 3 month look back period they are the best actor having advanced 6.3%. The market is rewarding very safe groups, and last week was no exception. Only the utilities, healthcare and real estate gained ground last week, while the communication services, technology and discretionary all FELL more than 2%. Below is the ratio chart of the XLP over the S&P 500, and it clearly shows this defensive space is benefitting from investors deploying capital to this area. Is it giving more risk on groups a breather for another leg higher, or more of an ominous sign? Constellation Buzzkill? A couple of the alcohol majors have been on different paths. Below is the ratio chart comparing two of the titans DEO and STZ (BUD is now 23% off most recent 52 week highs). DEO has been best of breed for sometime, know trading just 1% off most recent all time highs, while STZ is 15% off its most recent peak. DEO is higher 16% over the last one year period, while STZ is LOWER by 8% over the same timeframe. Consider as well that DEO carries a much superior dividend yield of 3.5% compared to STZ's 1.5%. The last 3 weeks have CLOSED amazingly taut for DEO, within just .22 of each other, near all time highs. Expect a powerful move. Examples: Recently we discussed how TWNK has been acting surprisingly well given that its products are not the most nutritious types that consumers seem to crave. Another stock proving this theory correct is the chart of MDLZ below and how it was profiled in our 5/8 Consumer Staples Report. Like many of its peers it trades in a very taut fashion, a hallmark bullish trait, and this week each of the 5 sessions CLOSED within just .25 of each other. To be fair the suggested 50.50 pivot was never hit, but it is a good illustration of how well the group is acting and if it were to be hit in the near future would be the first time coming into contact with the line since the bull flag breakout, often a great entry point.
Teetering Technology: Nothing goes up in a straight line. The Nasdaq has exhibited authoritative strength since the late December lows, and is now looking at a likely 3 week losing streak for the first time in 2019. It was in need of a breather as it rose 17 of the prior 19 weeks beginning with the week ending 12/28/18, rising nearly 2000 handles in the process. The tech rich benchmark now trades 7% off most recent all time highs, and today bounced off a 200 day SMA that has been flatlining for since the start of the year. That suggests there is no real trend, up or down for the moment, but one must give the benefit of the doubt to the bulls as the prevailing move has been dynamic. Keep your bullish hopes on a short leash however. Semiconductor Angst: All investors should pay attention to what the semiconductor group is trying to tell them. The holdings in the SMH, like most other ETFs are top heavy, and that could be shielding what is going on within the entire space. Similar to what the industrials went through with a heavy blow with BA and MMM, the SMH may be feeling some of the ill symptoms. Top component INTC still trades 25% off most recent 52 weeks highs, and second heaviest holding in the SMH QCOM is matching that weakness down 24% from its own recent peak. If one wants to put "lipstick on a pig" INTC did record a bullish engulfing candle Thursday and QCOM a hammer. These "value" plays may prove to be traps, or buying opportunities. Whatever they end up doing remember cash is always a position. Examples: In the type of environment we are witnessing it is important to monitor which names are demonstrating good relative strength. Below is the chart of ROKU, that we highlighted recently and how it appeared in our 5/10 Technology Report. This stock was UP today on a feeble tech tape rising 2.2%, as the Nasdaq dropped 1.6%, and more importantly on a WEEKLY basis is HIGHER by 7.1% as the Nasdaq is LOWER by 2.4%. It stopped just pennies short of the very round 90 number, but is poised to record a SIX week winning streak. This is a name to buy on any weakness going forward.
Earnings Drag: The XLY is looking at its first FOUR week losing streak in the last 6 months. It is off 1% this week, after the prior 3 fell by a combined, pedestrian 4%. That being said there are some worrisome factors, most notably some poor reactions to earnings recently. Wednesday witnessed some very weak showings by a trio of retail actors. Reliable laggards like URBN and JWN are now down 54 and 49% from their respective peaks. They fell 9.8 and 9.2%, but perhaps a bit more surprisingly was the behavior in LOW which lost 11.8%, and was unable to record the reversal HD did Tuesday after its own release. The latter is separating itself as the clear winner. Retail Reeling: The old adage states "nothing good happens below the 200 day". If that is the case the XRT is speaking volumes with a negative narrative. Currently it trades in bear market mode down 20% from most recent 52 week highs, and is sporting a bear flag formation which are generally continuation patterns in the prevailing direction. The ETF is looking at a possible first 3 week losing streak on 2019, lower by .9% so far, after back to back previous weeks lost well more than 3%. A potential handle on a long WEEKLY cup base of AMZN, by far the funds largest component, is looking dubious. Examples: Plenty of stocks have been announcing secondary offerings as of late, and that may be a concern as new shares flood the market in addition to the recent plethora of IPOs. Below is a name that is holding near the secondary offering price, a good sign. The chart of TWNK, and how it appeared in our 5/17 Consumer Discretionary Report, shows a nice uptrend, in particular for a non healthy company as consumers are moving toward more nutritious foods. It also filled in a gap from the 5/8 earnings session. There are a couple things that are leaving a nice taste in the mouth of shareholders, pun intended.
Healthcare Heavy: Not much has changed for the diverse healthcare sector, as it still is the "worst" (still higher by 3.5%) performing major S&P sector on a YTD basis by a wide margin. It is even being outshined by the lagging energy and materials groups too. The XLV is trading just 7% off most recent 52 week highs, but other spaces are dragging with the XBI down 18% off its own recent peak. The biotech ETF is lower 5 of the last 6 weeks, but is making a stand here at the round 80 number. Both its 50 and 200 day SMAs are pointing lower and it has the look of a bearish rounding top if it slices underneath the 80 figure. Below is the ratio chart of the XLV against the S&P 500. The providers have given it a push higher over the last month, and if biotech can get its act together a downtrend could be decisively broken. Equipment Redemption: The medical equipment group is often thought of a reliable space within healthcare. The best names will normally pay a decent dividend and the trajectory of price charts will show a bit more stability, compared to the higher beta biotech cousins. Below is the ratio chart of the medical equipment ETF, the IHI, in relation the the biotech XBI. There was certainly indecision on the group as a whole between January and March, but they have made a nice push higher since. Whether it is a function of the biotechs lagging, or not, give credit to the resurgent subsector. Examples: Trends are more likely to persist than reverse, and that goes for the upside or downside. Below is a good example of that with the chart of TEVA and how it was profiled in our 4/10 Healthcare Report. The sector has been a laggard overall, but this name is really weak now 54% off most recent 52 week highs. Peers in the space are acting poorly too, a sign that is a positive for market participants that are short the arena. Namely MYL and PRGO are both 54 and 38% off their respective recent peaks. Today was just the fourth session that TEVA rose in the month of May.