The Week Ahead: Energy Rotation Underway? There are some circumstances when one looks back in retrospect that they see the light. Since we are on the theme of commodities I remember when the KOL stopped trading in December 2020, and since then coal stocks have soared overall. For example, CEIX was trading with a 5 handle when the ETF shut down and is now trading just above the very round 50 number, 10X higher. The tweet below that came out this week to me said this may be the top of the energy as BlackRock is about to embark on letting go of technology, which is at extremely depressed levels in favor of an energy group that has soared over the last couple years. We obviously will not know until well after the fact, but we may look back on this tweet as an aha moment.
Material Indecision: In a dreadful week for overall markets where all 11 of the major S&P sectors fell, the XLB could take a small consolation prize for falling the least by .8%. Steel names were the biggest weight on the group with CLF off 12% and X by 9%, and the latter is trading back to the 30 number which bulls would like to see as support, with the level being former resistance twice in 2021. There was no real place to hide this week as gold miners slipped with names like NEM and RGLD falling 2.2 and 5% respectively. NEM recorded a rare double-digit WEEKLY loss 2 weeks ago, just it's second since March of 2020, and that was a red flag occurring so quickly after a strong WEEKLY cup base breakout. FCX is right back to its 200-day SMA and the area of a bullish island reversal completed with the gap up on 2/9 after the gap down on 1/21. Overall the chart below of the XLB, trying to capture a sector feel one has to proceed with caution. The WEEKLY bearish engulfing candle ending 4/22 fell almost 4% and intraweek was above a bull flag (also the 4-week tight pattern we speak of on the chart). However, as always we have to be open-minded about upside potential as well.
DIS: Name now 37% off most recent 52-week highs (NFLX 69% off its annual peak). Stock lost 9.3% last week in second-largest WEEKLY volume of 2022 so far, its third WEEKLY loss of 9% since last November. On 5-week losing streak (first such streak since September-October 2020), has declined 8 of the last 9 weeks. Could see this name traveling toward very round par number this summer.
Size Matters: In times of caution, investors crave more mature, defensive names. The ratio chart comparing the IBB to the XBI demonstrates this well. This past week the 2 ETFs traded inline up nearly 4%. In 2022 the IBB is lower by 13% "outperforming" the XBI which has declined by 17%. Looking at their descents from their most recent 52-week highs IBB is faring a bit better 25% off last August's peak, whereas the XBI is down 34% from its ascent last July. The top-heavy IBB is being aided by top 5 holding REGN which has been trading between the very round 600 and 700 figures since late last December. A CLOSE above 700, the last 3 days of last week were all above intraday but zero CLOSES above could be considered a bull flag breakout with a measured move to 800. VRTX, another top 5 holding, fell just five days in all of March is above a 255.03 cup base pivot. I think one can buy a mix of the best in breed names in both of these funds and we will delve into that below.
Opportunity Or Omen? The disaster that occurred within the finance group recently here was pale in comparison to what happened with their European counterparts. The EUFN plummeted more than 15% this week in the largest WEEKLY volume in at least 5 years. One name I do think provides a decent opportunity is DB which Friday CLOSED right at the very round 10 number. Just one month ago it recorded a very powerful breakout above a WEEKLY cup base pivot of 15.44 the week ending 2/4 that screamed higher by 17% in a pattern nine months in duration. Getting back to our domestic names BAC is trading between the very round 40-50 figures. The big question is if the huge drawdown across the ocean is creating good long-term entries into some of the best in breed banks here? Is the weakness in the ten-year yield putting a bid under the home construction ETF in the ITB? The fund is on a 7-week losing streak although it did record a huge bullish hammer WEEKLY candle the week ending off the round 60 number, and the last 5 weeks have CLOSED taut finishing with a 66 or 67 handle. In my opinion, some of the better plays in the XLF is BRKB which trades 1% off all-time highs and has defended the very round 300 number on 1/24-25 and 2/24. Another top ten holding in the fund SCHW looks solid with a CLOSING stop below 76.
Caution Warranted: Candlesticks are a very useful strategy that can be used in bullish or bearish scenarios. I have found over the years they can offer good risk/reward and be accurate when trying to find a stock that could be bottoming. Calling a top in a specific name or index is a tricky endeavor as the markets do have a long term upward bias, but there is a candlestick that I have found with my experience can be helpful, if not in outrighting shorting, can be useful to exit or reduce one's position. The one I will show in this article, with several examples is the filled-in black candlestick. This often happens at short-term peaks with a stock, and it is when a name opens powerfully higher than the prior sessions CLOSE, but selling pressure appears throughout the day but does CLOSE above the prior sessions finish. It indicates fatigue and offers a good potential short entry with a stop above the filled-in black candlesticks intraday high. Let's take a look at a few situations where this played out. These rare candles often occur with events such as earnings announcements, etc. Use this post purely for educational purposes as some of these stocks have their own earnings reports coming this week.