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Is the Dam Breaking? The energy space is seeing money flow from the formerly very robust group into technology. Last week the XLE was the worst-performing major S&P sector dropping 7% in more than double the average WEEKLY volume, undercutting its 50 WEEK SMA in the process. On a YTD basis, it is the only major sector of 11 down more than double digits, and keep in mind this is the same group that rose more than 50% in both 2021 and 2022. It certainly has a target on its back with that type of outperformance and remember once trends are in motion they are more likely to stay that way than to reverse. Inside the arena, the energy equipment names were holding up best but the OIH is now in "bear market mode" 23% from highs made just in late January. It has now recorded back-to-back double-digit WEEKLY losses as the group lost its leader. We spoke of how it was unlikely to duplicate that consecutive yearly performance in our 2/1 Energy Note and it is looking more and more likely that may be the case.

High Yield Perking Up: As financials are still the worst-performing major S&P sector over the last one-month period, even acting worse than the cratering energy group, there are some very small green shoots. There are some better-looking candles currently, and remember these give you a good risk/reward entry as opposed to just blindly trying to catch proverbial falling knives. The XLF recorded a bullish engulfing candle Thursday after a spinning top candle the day before. Even the hardest hit KRE has not yet undercut the long-legged doji candle it registered on Monday. The IAK has a nice Thursday, although it did fill in an upside gap from Tuesday's session. Below is the chart of the JNK, which many market participants like to gauge "risk on" behavior with and it is ever so slowly breaking ABOVE a bearish head and shoulders pattern. Its 200-day SMA is sloping higher and has been support twice since the 6% haircut made from the bearish island reversal from 2/2.

Rotation Ongoing: If one was able to skirt the weakness in energy and the banks, and were overweight technology the recent pain would not be as formidable. Of course, that is a lot easier said than done. It was not too long ago that we were talking about how the Dow was leading, and now it is lower by 4% YTD, while the Nasdaq is up 9%, S&P 500 by 1%, and the Russell 2000 is off 1% thus far in 2023. These major benchmarks have played musical chairs at different points in the first quarter which is quickly coming to a close in a couple of weeks. Semis have been holding their own, and software is starting to sprout while others groups falter. Below is the chart of the Nasdaq which has been catching some rotation, perhaps out of energy (OIH was down 9% at one point Wednesday). The tech-heavy benchmark was a clear "leader" again UNCH on the session while the Dow and S&P 500 were both off to the tune of nearly 1%. Respect strength. META is acting well POST breakout from a cup with handle 190.46 on Tuesday. GOOGL feels like it's coming to life too.

Battery Charged: In our last Consumer Discretionary Note on 3/3, we looked at the chart below of TSLA just how it was annotated here. The note's title was Battery Running Low. Perhaps with the pit stop and rest at the rising 50-day SMA it can indeed make another challenge toward the very round 200 number. That would be a big help for the XLY as this is the second largest holding in the fund. AMZN is trying to maintain ground above the very round 90 number, but the follow-through today after Monday's bullish piercing line candle was tepid at best. The XLY itself did record a bullish counterattack candle Monday, and in my opinion, this must remain above 135 or this will be a very long next quarter for the consumer space overall. Concerning is the action comparing the XRT to the XLY. The more "equal weighted" XRT is up 2% YTD compared to the XLY up 8%, and over the last one month period is down 13% while the XLY is off 8%. Bulls want to see more "participation".

Software Raising Its Hand: The software group has played second fiddle to the semiconductors for some time now. But that could start to change. Looking across the single stock leaderboards, not only today but for the last several sessions, within technology and they will show a plethora of software plays. Monday overall the IGV performed better up .7% compared to an UNCH move in the SMH. That could have been the result of investors clamoring for some mega-cap names in the uncertainty with MSFT up more than 2%, the IGV's second-largest holding. The fourth largest component in ORCL recorded a bullish engulfing candle. Other names acting nicely to start the week were HUBS which bounced off its 50-day SMA and now sports a double bottom pivot of 414.10 its strength can materialize. PLTR registered a bullish engulfing candle. Below is the chart of the IGV and it can back to a level of former resistance after a quick 10% haircut from the very round 300 number on 2/2. It is clear that bulls and bears are in a fierce tug of war right here in the 270 area line in the sand.