Housing Comfort? Markets roared to start the week Monday, with the lagging financials the big winner up well more than 2%. The groups bulls want to see underperform were right on cue too with the staples, utilities and real estate all LOWER on the day. The discretionary group displayed some odd behavior today with the lagging auto space showing strength, and the homebuilders one of the worst acting subsectors within the consumer arena. LEN PHM and TOL brother all CLOSED near the UNCH mark today. TOL and LEN still remain in bear market mode off more than 20% from most recent 52 week highs, not the best of action. Below is the chart of the ITB and it is currently testing a short double bottom breakout trigger of 35.46 taken out on 3/27. All of the aforementioned names are taking shelter right above their 200 day SMAs, pun intended. Under the Hood of Retail: We are all aware by now the changes in the major S&P sector ETFs. The XLY is the more followed fund, but remember it is dominated by AMZN, and that is a bit of an understatement as it makes up nearly one quarter of the ETF. Below is the ratio chart contrasting the XRT to the S&P 500. It is a more clear picture larger umbrella of names in the group. For example to largest component in the XRT, KMX represents just 1.4% of the ETF. It is heavily weighted to apparel, or clothing names, and the chart below suggests they are not pulling their weight against the S&P 500. Lower lows and highs are in place for the last 5 months. Examples: I may sound like a broken record stating the the best breakouts tend to work out right away, but the quicker one can be convinced of this the better. Below is an excellent example of GRMN and how it was profiled in our 3/28 Consumer Report. The stock is now higher 13 of the last 14 weeks after a push off the round 60 number in late December last year. A 16% move the week ending 2/22, in the strongest weekly trade in 2 years, was digested well for 4 weeks before last weeks break above a bull flag. The measured move is to the very round par number, which could be hit later this year.
Russell Foreshadowing? They say small caps names are often a good leading indicator, one for their nimble ability to move quickly unlike, their larger cap cousins. Below is a chart of the Russell 2000, and two takeaways are that it is primarily a domestic index. If this is the case why the underperformance if the economy is so strong? Pundits will point out its large exposure to financials as the reason, a group that is acting poorly. That gets into our second point, that the third largest group representing the index is technology, just behind healthcare, at 15.4%. Why is it not keeping pace with the strongest sector YTD? No one knows and that is a good reason to follow PRICE action. For the last month it has traded between the round 1500-1600 figures. Whichever number it breaks from should have market consequences. Apple Blossom? AAPL will play a big role into the direction of the Nasdaq, and therefore the overall markets, IF it can break free decisively from its 200 day SMA. It did just that on 3/23, yet the very next session recorded a bearish dark cloud cover. This week did not do much to inspire the bull or bear camp, although the lack of follow through after the break above the long term secular line should be a bit concerning to the bulls. The chart did record a doji candle today and Wednesday, which tends to indicate exhaustion of the prevailing trend (produced a 39.2% move from the 12/24/18 lows), although it did that on 2/25, 3/4 and again on 3/14. There is no rush, let the potential scenario play out and exhibit patience in the meantime. Examples: The chatter about IPOs going forward should hit a fevered pace going forward of course with Lyft today and Uber and Pinterest not long after. Some recent names should never have come public, APRN or FRTA come to mind. Below is the chart of another one of EB and how it appeared in our 3/25 Technology Report. This name is now 52% off most recent highs, since hitting highs right at the round 40 number on 9/26/18, and is on a current 4 week losing streak, showing awful relative strength this week slumping nearly 10%.
Rails on the Run: Over the last one month period the industrials continue to lag, edging out the seemingly perennial laggard financials. In that time frame they have dropped 2.1%, and are only one of three major S&P sectors that fallen fallen during the last month (healthcare down fractionally). Transportation was a big mover Thursday as the IYT recorded its first 3 day winning streak in over one month. Lower highs are still in place since last September as the airlines have been an overall drag. A potential break above the downtrend in place on the ratio chart could be a nice welcome to drive the group higher, pun intended. Airline Angst: Looking at the chart below the first thing that comes to mind is hard landing. The airlines have weighed down the transports, but peering over the arena, one could make the case for an oversold bounce here. Will it be just a relief rally or the beginning of something substantial? One would have to go with the former until proven otherwise as the downtrend is still firmly in place. SAVE looks like a good risk/reward scenario as the gap from the 11/25/18 session was recently filled and it is trading just above the very round 50 number and upward sloping 200 day SMA. Examples: Any stocks that one has in their portfolio that has not participated in the ramp up we have seen in the last 3 months since the late December lows so treat that name as a red flag. Below is an example of just that with the chart of GBX and how it appeared in our 3/13 Industrial Report. It is now lower but 49% from most recent 52 week highs, and has declined 17 of the last 24 weeks and this week is off by another 2% so far. This is certainly not a name one wants to go long with, but a cover of the short near the round 30 number seems reasonable as that could act as support dating back to October '16.
Bellwethers: Last week we discussed that AAPL was a proxy for the Nasdaq as it comprises nearly 7% of the index. Its 200 day SMA is a line in the sand and should have overall market implications. It remains stuck there, and an obvious bellwether for the XLY is AMZN as it makes up nearly 25% of the ETF. Keep in mind that both of theses mega cap names are still well off their most recent 52 week highs with AMZN down 14 and AAPL 19%. If this couple can garner any kind of strength toward old highs this spring the market has a lot of room to run, a big if of course. Lets take a look at the chart of AMZN, as its direction will also move benchmarks. Gap Fills In Gap. Wait What? Laggards usually can be identified with certain features. They show wide and loose trade, just the opposite of very tight trade for bullish behavior. Below is the chart of GPS and notice the wayward trade. It put up a gigantic move of more than 16% on 3/1 after reporting it would spin off Old Navy. Those gains evaporated quickly as it filled in that gap last week. Regarding spin offs we posted a chart of ELAN on Monday in our Healthcare Report. Anyone with pets realizes the costs involved are huge for medicine. Anyone surprised that two companies now have been spun off to concentrate purely on capitalizing on it. ZTS from PFE and ELAN from LLY. Examples: The saying goes most gaps are filled. It is probably accurate, but if PRICE action is acting well near a gap fill it certainly gives an investor a good risk/reward scenario. Below is a good example of DDS and how it was presented in our 3/12 Consumer Report. The stock trades 26% off most recent 52 week highs, but notice how gap was filled almost precisely on 3/7 from the 2/25 session. It is up by 2.2% this week and the prior 3 all traded within the range of the week ending 3/1's gain of almost 15%. The rejection at the 200 day SMA for a third consecutive day is a line in the sand now.
Biotech Bubbling: Healthcare overall is still in the 2019 doghouse. The sector cellar dweller is still the worst performer on a YTD basis, yet still higher in the 5% neighborhood. Below is the chart of the XBI and it shows some technical strength as Monday registered a bullish reversal off rising 50 day SMA, although the line still swims below its 200 day SMA. The positives are that it is holding its recent bullish ascending triangle breakout, and has filled in a gap successfully. However we know breakouts are normally retested before they can resume their hopeful advance. This one has been tested twice now, and another could prove fatal. Providers Peril: Healthcare is a very diverse space and most of the attention is dedicated to biotech and pharma names. The devices continue to register nice advances with the IHI just 2% off most recent 52 week highs. One section of the group that does not garner much thought are the healthcare providers. There are just a couple ETFs dedicated to them, and below is the chart of the IHF. It trades on average less than 100K shares a day, but it gives a good illustration of what is happening with individual names. Two of the top five largest holdings in the fund, CVS and CI are deep into bear market territory lower by 34 and 28% from most recent 52 week highs respectively. Examples: Spinoffs are often a good way for parent companies to unlock shareholder value, and is giver the newly formed company some autonomy to have a singular, narrow minded focus. Below is the chart of ELAN, a good example of a recent spinoff and how it was presented in our 3/19 Healthcare Report. A series of lower lows since last September, obviously not the best time to start trading on your own, was halted earlier in March. It seems to becoming more comfortable above its 50 day SMA, which has flatlined, and this name deserves to be on investors radar with the new found strength.