Semiconductors Surging: Comparison To Nasdaq: The semiconductors have got their groove back. They were playing second fiddle to the software sector for months, but the semis are carrying the Nasdaq on its back. Perhaps they are giving software some time to rest before they reclaim the top leadership spot, but either way its a good sign for overall markets. All Semiconductors Are Not Created Equal: Below is a great illustration of the bifurcated nature that exists in all subsectors of market industries. It shows that trends are more likely to persist than reverse. Buy strength and sell weakness. Look at the disparity in these four "old tech" plays. XLNX and AMD are higher by 49 and 43% YTD respectively while MU and NVDA are up 31 and 33% in 2019. Favorite Three Semiconductor Ideas: KLAC: "Old tech" semi play higher by 35% YTD and 7% over last one year period. Dividend yield of 2.5%. FIVE consecutive positive earnings reactions up 4.9, 7.6, 10.5, 1.3 and .3% on 1/30, 10/30, 7/31, 4/27 and 1/26/18. Higher 11 of last 13 weeks and just 3% off most recent all time highs recorded this week. Enter on pullback into bull flag breakout at 118. Look for measured move to 132. Ratio Chart Comparing Two Former Rivals: These two prior generals in the space can no longer be spoken of in the same sentence. KLAC is just 3% off most recent ALL time highs, while AMAT trades lower by 35% off its own recent ascent. AMAT has very small dividend yield of .8% in contrast. ADI: Semiconductor leader higher by 25% YTD and 19% over last one year period. Dividend yield of 2%. FOUR consecutive positive earnings reactions advancing 2.5, 4.1, 2.1 and 2.3% on 2/20, 11/20, 8/22 and 5/31/18. Up 11 of last 13 weeks and once piercing resistance at round 100 number jumped a quick 10%. Enter on pullback into break above WEEKLY cup base breakout trigger of 103.69 at 105. MCHP: Semiconductor play higher by 19% YTD and lower by 12% over last one year period. Dividend yield of 1.7%. Down 18% from most recent 52 week highs and lower 4 of last 5 weeks, but most likely digesting 29% combined move during 6 week winning streak weeks ending between 1/11-2/15. Back to back positive earnings of 7.3 and 5.9% on 2/6 and 11/8/18 inspire confidence. Enter here after recent break above bullish ascending triangle, and successful gap fill from 2/5 session on 3/8.
Give Nasdaq Credit Where Its Due: The Nasdaq registered its second worst day in 2019 Friday falling 2.5%. The only other precedent this year was 1/3 when AAPL fell 10%. What happened the very next session? It ROSE 4.3%. Small sample obviously, but the bears have been unable to show much follow through to the downside. With the exception of the 5 day losing streak between 3-4/8, it recorded back to back losses just twice so far this year. Most concerning this week was the Russell 2000 falling more than 3.1% as the she small cap benchmark is often a good leading indicator. The fact that it is below both its 50 and 200 day SMA now, as the Nasdaq, Dow and S&P 500 are all above, is worrisome. Many declare its the large weighting of financials in the index, but as that group continues to melt it should have less an impact upon it. Semi Surrender? The semiconductors have been a bright spot in 2019 as well needed strength within the group emerged. They are now edging out software YTD with the SMH higher by 22.3% and the IQV has rose 21.9%. This week the SMH did record a bearish spinning top, known for its ability to forecast trend changes. It did CLOSE near lows for the weekly range, just like it did the week ending 2/8 (also a spinning top), which did NOT interrupt its ascent. From the week ending 12/28/18 it has risen 37% top to bottom, so a pullback is a good thing. Looking at leaders in the space even though percentage gains were rather large, the volume was tepid. I would have expected more, especially on a Friday. Next week should provide some clarity. Examples: Most breakouts tend to be retested to check their legitimacy. Below is the chart of ACIA and how it was presented in our 3/13 Technology Report, and this one is no exception. The move above a bull flag formation on 3/18 rose more than 3% on double average daily volume, exactly what you want to see. Thursday added another 4.4% on hefty trade once again, and then Friday swooned lower by almost 6%. Three of the last four weeks have CLOSED in the lower half of the weekly range and next week will be a big test for the name. Keep it on a short leash as we know the best breakouts tend to work right away.
Animal Spirits Within Energy: There has been a lot going on in the oil group, with probably the biggest development the USA becoming a net exporter for the first time in many decades. It has had to deal with the greenback with the UUP in an overall uptrend, even as the 10 year yield is acting poorly. This is all just macro talk, which is important, but takes a back seat to PRICE action like everything else. It is all in the reaction of PRICE to all the news, and with the XLE up more than 18% with the first quarter about to end, it is hard to ignore. The move comes with a caveat, as it is coming off very depressed levels. Keep in mind 2017 was the second worst, and 2018 was the worst actor of all the 11 major S&P sectors. Is the group poised for a relief rally that witnessed it being the BEST performing group in 2017 up 27.4%? Drillers Gushing Profits: It is not just important to look for specific sectors that are acting well, (remember the vast majority of a stocks advance or decline can be linked to its industry) but one should also drill down within the exact space to see where the real strength is coming from. Below we see the obvious vigor in the equipment plays compared to the exploration names. And when I was looking through the holdings of the OIH, of course it is weighed down by big laggards like SLB and HAL, with both making up more than one third of the ETF. Each of those names are more than 40% off most recent 52 week highs, which makes the power in the OIH even more impressive. Was surprised to NOT see fresh leadership in the OIH, like a PUMP that is trading just off ALL TIME highs. Examples: Many names in the beat up, but now ascending energy group are climbing the staircase higher. Bulls hope they do not take the elevator down. So far so good, and PRICE is paramount and must be respected. Below is the chart of PDCE and how it appeared in our 3/14 Energy Report. This former best of breed name is looking for its THIRD double digit weekly gains in as many months. It is higher more than 50% in 2019, and we are big proponents of round number theory and once this name climbed above 40 there has been no turning back. A move above the 200 day SMA will put this on a possible quick move to 50, the measured move.
Here at ChartSmarter I have become very focused with my work, and the last few months have been doing a daily report on a specific sector. Today I am going to be even more concentrated, and fixate on an individual country. Below we will look at two stocks that have made fine moves as of late. First is Ecopetrol, and directly below is the chart and how we looked at the name in our 2/28 Energy Report. Integrated Colombian energy play higher by 33% YTD and 15% over last one year period. Dividend yield of 3.1%. Higher 6 of last 8 weeks and good relative strength this week up 6.1% thus far after earnings. Still trying to work off nasty 45.5% decline during 9 of 13 week losing streak weeks ending between 10/5-12/28/18. Enter with buy stop above 200 day SMA at 21.45. Add to through cup base pivot of 28.06. Entry EC 21.45. Stop 19.75. Fast forward to today and we see the name is now 8.3% above the recommended pivot. Excellent relative strength this week higher by 6.7%, and fine follow through AFTER the prior week advanced 8.1%. Give extra credit for the name being both above its 50 and 200 day SMAs currently, not a feat many in the group can boast of. Still 18% off most recent 52 week highs, giving name some room to run for those that think they missed the move. Stay long with CLOSES above the flatlining 200 day SMA. Let us now take a look at a financial play CIB on its WEEKLY chart. Blistering strength higher by 40% YTD and sports dividend yield of 2.5%. EIGHT session winning streak, and trading right at ALL time highs very impressive in a weak over financial space. Looking to break above 51.48 WEEKLY cup base trigger this week in pattern 11 months long. Former resistance at very round 50 number should become support. Enter on pullback near 52 and use a stop of 48. Let us take a quick peek just how firm CIB has been on this ratio chart in contrast to the XLF. In addition on a much shorter term time frame the last 2 sessions have seen nasty CLOSES at the lows for the daily range on the XLF, while CIB did just the opposite. A tell.
The Drip Lower Getting Louder? The industrials, earlier in '19, had a firm hold on the top of the leaderboard with the 11 major S&P sectors. It has slowly descended and has now been leapfrogged by energy, and is now the third best group with real estate hot on its tail. We will soon see if the ratio chart below comparing the XLI to the S&P 500 can undergo a soft landing, with the steep recent decline. MMM the second largest component, has not been garnering much attention with BA and FDX smothering it, but if this name can CLOSE above the round 210 number (been above intraday 6 times since 12/1/18 but recorded just one CLOSE above 210) it could give the ETF a boost. Transport Trickledown: One would have to be living under a rock to not be aware of the softness in the transports lately. Sure FDX was the big news today, but airlines have had their share of disappointment. The rails have been holding up in a lukewarm fashion with names like CSX and UNP off by just 4 and 6% from their most recent 52 week highs. Their counterparts however are a whole different story. Rail part makers like RAIL, GBX and WAB are now 65, 43 and 37% off their most recent ascents. The reason for the shortcoming is unknown, but the PRICE action is speaking volumes. As always pay attention. Examples: There has not been much to like in the industrial arena as of late, but if one searches they could find some relative strength. Below is the chart of FSS and how it appeared in our 3/7 Industrial Report. The stock is higher 4 of the last 5 weeks, with 3 of the 4 rising by more than 5, 6 and 7%. This week is higher by 1.5% and this is a good showing following the prior weeks gain of 5%. It is holding nicely above the double bottom breakout trigger of 24.64 on its WEEKLY chart.