Apple Of My Eye: We often call AAPL a proxy for the Nasdaq, as it is the benchmarks 2nd largest component at almost 7%, just behind Microsoft. Therefore it obviously carries clout, and it should be watched closely as it has a big impact on the overall markets. The 215 level has been an impenetrable wall for the stock seeing several reversals at that level since early May. There is not much to do here, but wait until a possible bullish ascending triangle is taken out. The last 2 times the top of the pattern was touched near the 215 handle, it registered a 45 point decline in the month of May alone and a nearly 30 point drop top to bottom in the beginning of this month. This will be interesting to see how this pattern plays out going into the end of the year. Patience Wearing Thin: We continue to monitor the IGV for any clues that it may be attempting to display its former leadership qualities. Bulls will have to wait a bit longer, and time is of the essence. The chart of the ETF is starting to resemble a bear flag, and it has now CLOSED below its 50 day SMA for 13 consecutive sessions. It is a modest 7% off most recent 52 week highs, but volume trends are soft, with just 2 weeks of accumulation in all of 2019 thus far (weeks ending 2/1 and 6/7 that rose 2.6% and 3.7% respectively). The IGV is still higher by 23% YTD, but past leaders are starting to show some cracks. ZS the most notable fell 11.3% on 8/19 in the second largest daily volume in 14 months, undercutting its 50 day SMA decisively. Examples: As we have discussed plenty in the last few weeks, is the weak action in the software group. The undisputed leader within technology continues to look a bit fatigued. Below is the chart of a former leader in VEEV and how it appeared in our 8/16 Technology Note. The stock now trades 11% off most recent 52 week highs, and has made little overall headway higher in the last 3 months. Leaders will often not need that amount of time to compose themselves before resuming their uptrend. The pivot has not been breached but this should be on a watchlist. A possible 4 week losing streak depending on Fridays CLOSE looms, and consider it did not record a 3 week losing streak prior to the current one since March-April in 2018.
Sturdy PRICE Action: Although healthcare still remains the second "worst" performing major S&P sector YTD (XLV higher by 6.5% so far in 2019), on a one week and one month timeframe it is acting much better as it is the fifth best actor among the 11 groups. The chart of the ETF below has some things to like. The 200 day SMA is beginning to slope higher once again, and it has been quick to recoup the important line this month on a CLOSING basis. It is tightening up as it meets stern resistance at its 50 day SMA, and the fund could be on the verge of a big move higher. Give the ETF credit for being just 5% off most recent 52 week highs, given that 3 of its top 4 components are JNJ, UNH and PFE trading 11, 15 and 24% off their most respective yearly peaks. If any or all start to move higher it will act as a nice tailwind. Biotechs Sending Mixed Signals: In last weeks Healthcare Note we mentioned that we were positive on the relationship between the XBI and SPX going forward into year end, based on the ratio chart. That feeling still exists, but one has to have an open mind, and below is the PRICE chart of the XBI. The ETF is still 17% off most recent 52 week highs, but if it can manage to break ABOVE the bearish descending triangle, keep in mind breaks in the OPPOSITE direction tend to be very powerful. Still it must be kept in the penalty box, and there is nothing to do here on the XBI as the chart is in no mans land. Focus on individual leaders, or laggards in the space and trade accordingly. Examples: It is always important to keep an eye on stocks that are acting well in a group that is underperforming. That type of strength will often result in the particular name being one of the first out of the gate sprinting higher, once the space catches some love. Below could very well be an example with the chart of NBIX and how it appeared in our 8/13 Healthcare Note. It is still 22% off most recent 52 week highs, but higher by 38% YTD. The stock is looking for an 8 week winning streak depending on Fridays CLOSE, and is off to a good start up 1.5% Monday. Not surprisingly it is having issues with the very round par number, but looks like it may be temporary as the right side of a cup base on the WEEKLY chart is nicely taking shape.
Debt Weighs: Some names should remain private. WeWork will most likely be an example, but only time will tell. BJ is probably another lesson. Both of these names came (about to) to the market debt ridden. In the latter's case the stock decided to come public, knowing an absolute monster in COST would be breathing down its neck relentlessly. COST has gained ground 24 of the last 34 weeks, rising 100 handles from top to bottom and now trades 4% off most recent all time highs. Contrast that to BJ, which trades 34% off its most recent yearly peak. This is a name that went private and came public again, and I would not be the least bit surprised if it followed in the footsteps of peer PRTY, which is now 70% off its most recent 52 week highs. Glitter Gone: The saying in real life, goes "do not judge a book by its cover". The same can be said about the ratio chart below comparing Tiffanys to Signet Jewelers. Here TIF looks to be vastly outshining, and it is so to speak. However the stock is now 42% off most recent 52 week highs, but SIG is 83% off its most recent yearly peak. TIF looks to be resuming a downtrend after an ugly 16 of 21 week losing streak that nearly chopped it in half between weeks ending 8/3/18-12/21/18. Keep in mind while ratio charts are valuable in demonstrating stocks relative strength against each other, it does not necessarily mean superior absolute strength. Examples: The food products group has been a tricky one as of late. TWNK has put up a respectable showing with a YTD gain of 28%, although the Twinkies stock felt a bit bloated this week, pun intended, undercutting its 50 day SMA for the first time this year. On the other side of the spectrum KHC has been awful and now trades 59% off most recent 52 week highs. Below is the chart of LW, and how it appeared in our 8/14 Consumer Note. The name is still 18% off most recent yearly peak, and although we are not huge believers in mean reversion, this one looks poised to play some catch up to the group. It put in a nice performance this week rising 2.6%, and has advanced 7 of the last 8. The inverse head and shoulders has been taken out, now look to add above the 200 day SMA and round 70 figure.
Generals In Retreat? The leading software group has been a consistent beacon of light within technology, but that grip of strength appears to be weakening. Of course this is not a good development, and perhaps we should be listening intently to what they are trying to say. The semiconductors have not been quick to pick up any slack, although they may get a boost after a nice reaction from NVDA Friday. But peaking at performances of some former solid software names and these could be a warning of things to come. Stocks like PTC NEWR PS NTNX TWOU and DBX are all lower by at least 41% from most recent 52 week highs. Even respected names like ADSK and ZEN are in bear market mode off at least 20% from recent peaks. Could we be on the verge of adding SPLK to that list? It REPORTS earnings next Wednesday after the close. Waning Influence: For all the chatter of the rolling bull market, when it comes specifically to technology there has been none. Software was the group that basically has been going wire to wire, with some help along the way from the semiconductors, services and internet. But software never passed the baton to one of those aforementioned subsectors, and that may be precisely the reason it looks fatigued presently. Below is the chart of software compared to the Nasdaq, and its importance is lessening. If semiconductors can not step up to the plate and assume leadership this uptrend which already looks somewhat fragile may become more so. Software is not dead yet as names like SHOP AYX MANH PRO and PLAN deserve respect but TTD and ZS are teetering on the brink. Tread carefully. Examples: Some "old tech" names have been under the weather lately. CSCO for one cratered 8.6% Thursday after a poorly received earnings report, and now sits in bear market mode down 21% from most recent 52 week highs. VMW is now 31% off its most recent yearly peak. Below is the chart of a name performing a bit better, of ORCL and how it appeared in our 8/9 Technology Note. It is now below our 54 suggested entry, but is holding tentatively above a 52 stop. Yesterday it recorded a bullish harami off its 200 day SMA, and has now filled in its recent earnings gap from 6/19. Good risk/reward still exits in my opinion.
Fall From Grace: The industrials were at one point earlier this year neck and neck with technology. Those days are long gone as the XLI has slipped to the 7th best actor of the major 11 S&P sectors. That skid can be seen on a 3 month time frame of those same 11 groups, and it has fallen to the 9th best behaved, and one of just three which are DOWN during that span (notice real estate and utilities are the best behaved and may explain why markets have been somewhat fragile since). FDX is still in disarray off 40% from most recent 52 week highs, while peer UPS is just 9% off its most recent yearly peak. TTM has fallen 14 of the last 16 weeks, AGCO which until late last month a beauty of a chart is now in bear market mode. GVA is down more than half from its 52 week highs, without the courtesy of a 2:1 split (humor stab). CAT is looking at a 5 week losing streak down 28% from recent peaks. This is a time to favor cash, in any area of the market. If a sustained uptrend is to persevere in the near term you can afford to miss the first 3-5% recovery. Preparing For Descent: The relationship between crude prices and airline stocks, has not been as important as it used to be. Many say it is a factor of airlines being able to hedge away costs, but whatever the reason may be, the PRICE action is telling you that. AAL for one has been more than cut in half since a bearish WEEKLY evening star candle was completed the week ending 1/26/18 that dropped 8.6%. Former leader SAVE has slumped another 6% this week so far, AFTER cratering by a combined 23% the 3 weeks prior. Names like CPA have bucked the trend, and it may be a buy at the gap fill near the very round par number, but it makes sense to avoid the group. When a space has a lack of leadership, it makes even the winners failure prone. Examples: Some names in the industrial group started underperforming peers, well before the recent onslaught. Below is the chart of ROL and how it appeared in our 8/1 Industrial Note. The stock is now 27% off most recent 52 week highs, and is on pace for a 4 week losing streak dropping 4% the last couple weeks, AFTER a 9.4% slump the week ending 7/26. It has been under distribution since last September and has produced three straight negative earnings reactions falling 10.5, 10.1 and 3.1% on 7/24, 4/24 and 1/23. This one feels heavy.