Industrial Impotence: Earlier this year we pondered whether the industrial group could keep up its solid early YTD performance. It was the second best major S&P sector lagging only technology early on. It is silly to make predictions, but dating back to 1993 the space was never the best performing group, and that made it likely the gains would fade as '19 carried on. Fast forward to today and the leaderboard shows it has now dropped to the fifth spot from the second, albeit it is less than 1% from the same runner up level. BA still remains in bear market mode down 21% from most recent 52 week highs and met resistance Friday at its 200 day SMA. MMM lost 25% the last 4 weeks and this one started off where it left off last week down almost 2% Monday. The XLI has a couple anchors weighing on it. Undesirable Shipment: In the not too distant past we posted a ratio chart comparing the two behemoths in the delivery services space, UPS and FDX. The former recently was a better relative performer, and still is now down 21% from most recent 52 week highs compared to FDX's 37%. But let that sink in. FDX which has an excellent pulse on the global economy is more than ONE THIRD off its highs, and it still does not seem to be garnering much attention. Obviously the stock is under heavy distribution (selling in above average volume), but its last week of accumulation is dating back to the week ending 12/22/17. Below is the chart of UPS, and as we mentioned the better relative actor, but on an absolute basis is still down 21% from recent peaks. Not the type of returns shareholders want to be delivered, pun intended. Examples: The headline from the 5/3 Industrial Report was "Buy GE As It Brings Good Things To Life". Looks like I am dead WRONG about this, and it is a good lesson buying names in an overall downtrend. The stock has been in the news plenty in the last year, with new leadership, selling assets, but peering at a longer term chart shows the bearishness is still intact. It trades 37% off most recent 52 week highs, and that is even with the nearly double from the late December lows to the late February highs. Keep in mind, some of the most breathtaking moves higher occur during bear market, dead cat bounces. There are better places to put your capital to work.
Warren Woes: The financials registered their first back to back WEEKLY losses in 2019 Friday, with the XLF falling by an identical 2.1% each time. That weekly drop was the worst of any of the major 11 S&P sectors. Looking at the list of the top components in the ETF it still surprises me with BRKB being the largest weighting. It is nearing correction mode down 9% from most recent 52 week highs, and it lost 2.7% this week, following the 4.4% drop the week prior. The Oracle of Omaha may be losing his touch, and could his investment in AMZN be calling a top for the stock (he is also the largest holder in AAPL). He seems to be conforming to most hedge funds that have those two names among their top holdings. All Is Not Well With Wells: As some of the traditional money center banks are backing off, WFC never really joined the party. The stock is now well into bear market territory lower by 23% off most recent 52 week highs, more than double that of JPM and BAC which are off by 7 and 11% from their most recent ascents. It seems it can not shred its poor image from a couple years back. Since the beginning of February 2018, it has made a series of lower highs and lower lows. On its current chart it sports a bear flag formation and can be shorted with a sell stop below 45, and a breakdown carries a measured move to 38. Examples: The insurance sector has been resolute. Many names in the space trade very taut and pay respectable dividends. Below is the chart of AFL, and how it was presented in our 5/9 Financial Report. It ran into a bit of trouble with the very round 50 number in March but has since recorded 14 consecutive CLOSES above the figure, and showed solid character this week advancing 1.8%. Peers that are acting well include CINF and AJG, important to see a number of names firm as you do not want to see a single stock carrying the group on its back. This subsector of the finnies may be a good place to deploy capital as the overall markets contend with possible big double tops.
Discretionary Firm: The consumer seems to be alive and well. Of course the bull argument is in the numbers, the bear case is that money being spent is on credit on money shoppers do not really have. All that matters to market participants is PRICE action, and that is hard to deny. Below is the ratio chart comparing the XLY to the S&P 500 and it shows the stocks within are behaving well. The largest component in the ETF is AMZN and it is on a current 3 session winning streak, and is in the process of forming a handle on a 9 month cup base (potential pivot is 1964.50). The third largest weighting in the XLY is MCD, and it CLOSED just shy of the round 200 number and is looking for a 10 week winning streak depending on Fridays finish. Investors are loving it, pun intended. Hard Landing: The Jet acquisition was supposed to be a threat to the "AMZN effect", but a look at the ratio chart contrasting the two stocks show its may be muted. Or is there room for two behemoths in the consumer space? I think the latter. The chart below displays the weakness of WMT up against AMZN, but the WMT chart is holding up well on its own. It did record its second straight reversal on earnings today, although it still trades just 5% off most recent 52 week highs. Looking at one year returns however shows a similar path with WMT higher by 18% and AMZN by 20%. Of course AMZN is a higher beta name without a dividend. Both will work for shareholders. Examples: The leisure space has been a strong one, and below is a best of breed play HLT and how it was presented in our 5/7 Consumer Report. The round number theory came into play with the 90 figure with 11 of the last 12 sessions CLOSING above the figure, with the lone exception being 5/13. It is demonstrating solid relative strength this week higher by nearly 3%, nice follow through after the week ending 5/3 rose 6%. The stock now trades at all time highs and is outperforming peers like MTN and WYND that are off by 26 and 16% their respective 52 week highs. Stick with the leaders.
Unsuccessful Software Coup: The leading software group has rebounded nicely after its first CLOSE below its 50 day SMA Monday, for the first time in 2019. The last 2 sessions have gained a combined 3.2%, albeit it has not fully recaptured Mondays blow of 3.8%. Similar to the general in the semiconductor space when XLNX retreated heavily after earnings, the leader in the software arena, TTD slumped 14.5% on 5/9, but to its credit added nearly 13% the last 2 days. Below is a name that is assuming best in breed COUP and how it was profiled in our 5/6 Technology Report. The round number theory came into play with the very round par figure, which acted as resistance between March-April, now looks like sturdy support. In Sun Tzu's The Art Of War, he states "avoid what is strong", and that could apply here for the shorts that made a valiant effort to break this name. The bears should look for better opportunities where the outcome may be more successful. Semiconductor Tailwind Now? In our last Technology Report 6 days ago we looked at the WEEKLY chart of INTC and how the precipitous drop was no surprise given the quick failure of a long cup base breakout. This name is still well into bear market mode down 23% from most recent 52 week highs, and has lost ground 14 of the last 17 sessions. As stocks give off signals near market tops this name could have indicated a bottom in the lofty decline. This Tuesday not only recorded a bullish harami, but it was also a doji which often has the ability to predict a weakening of the prevailing trend. Now I think there are better acting names to play on the long side in the semiconductors, but one has a good risk/reward entry to the long side with a stop below 44.70. Examples: Technology is still easily the best performing major S&P sector YTD up nearly 22% so far and its nearest competitor is more than 3% away in the communication services group. One name that should be admired is the chart of ROKU below, and how it appeared in our 5/10 Technology Report. It carved out a long WEEKLY cup with handle pattern, that was also deep, but one has to respect that is is modestly higher this week by .7%, AFTER the prior week screamed up more than 27% (Nasdaq is LOWER by 1.2% this week thus far). It is holding the round 80 number firm too CLOSING above 4 of the last 5 session.
Housing Happiness: During a week that seemed so positive, with many strong intraday reversals, keep in mind every major S&P sector lost ground. And the ones that "outperformed" were your defensive groups, like staples utilities and real estate that all fell less than 1%. Give credit to the XLY which did bounce off a rising 50 day SMA Friday, and on a YTD timeframe has still risen nearly 19%. Looking a bit deeper into the space, the homebuilders have been the best acting subsector with discretionary. They most likely are benefitting from a scenario going forward which sees little chances of interest rate increases, which is good not only for them, but the overall markets. When Discount Is Premium: Discount plays are traditionally known for their ability to thrive in downturns, but they show nice appreciation as well. Consumers have become much more savvy and have changed their spending habits. Below is a ratio chart comparing COST to BJ which recently came public once again, with the latter losing more than 4% and now sitting 17% off most recent 52 week highs. Contrast that with COST, which rose 1% this week and now trades just 1% off recent all time highs. It is higher 15 of the last 20 weeks, and this week bounced off its rising 50 day SMA for the first time since a break above a cup base pivot 240.98 taken out on 3/28, often a good entry point. Examples: There were few shining examples of good moves within the retail arena this past week, with the exception of MCD WING and COST. Below is another name that recorded a nice weekly move, OLLI and how it was presented in our 5/7 Consumer Report. It lost ground just six sessions in all of May and is on a current 7 week winning streak and sitting at all time highs. Friday registered its first CLOSE above the round 100 number, and this name deserves plenty of your attention with its standout week, while peers struggled.