Monthly Archives: May 2016

Markets started Tuesdays session in firm ground and just kept gaining altitude. The Nasdaq made the strongest impression rising 2%, and a powerful move by that index as well as the the Russell 2000 up 2.1% is a very welcome sign for the bulls. It is seen as a "risk on" environment. The tech rich benchmark is looking to outperform the S&P 500 for a third consecutive week with a gain of 1.9% compared to the S&P 500's 1.1% rise so far this week. The Nasdaq chart can now be interpreted in a positive fashion with todays move above the 50 and 200 day SMAs now looking like an inverse head and shoulders pattern with a slanted neckline that began last November. One gets the sense that the abundance of cash on the sidelines along with the capital that has been non stop flowing out of equites and into bonds may be on the verge of reversing itself. In short it is called FOMO. The groups which have been strong as of late were the laggards Tuesday with the energy and material sectors being left behind. Perhaps this could be the beginning of a rotation out of these names and into technology. This is healthy action as diverse groups at one time or another have led, be it the transports or the utilities and staples. Money seems to be flowing into the financial space too and this space has a large ecosystem. Whether it be the credit cards, banks, or exchanges to name a few, the sectors recent strength is a bullish development. Below is the chart of NDAQ which we highlighted in our Thursday 5/5 Game Plan as we were fond of the bullish engulfing candle on 5/2. Today it burst above its 50 day SMA taking out a double bottom trigger of 65.35. One can now add through a cup base trigger of 67.71 which would be an all time high if taken out.

Markets began the week in listless fashion with the indexes not directional one way or the other. The Nasdaq fell by .1% and the S&P 500 lost .2%. The materials group led by a wide margin with the XLB up 1.4% buoyed by its third largest component MON receiving a bid. Defensive groups continue to lag with the utilities the worst performer on Monday. In fact last week saw an exodus from some of the safety names in a possible early rotation into some bullish groups. Names like CPB fell 9.4% last week in weekly volume not seen since the week ending 12/20/13 (it gave back the prior 3 weeks worth of nearly 9% gains and volume last week almost equaled the 3 weeks ending between 4/29-5/13). HRL slumped 12.6% in weekly volume not seen in the last 5 years and that was on top of a combined 15% loss the 3 weeks ending 4/8-22. Below is the chart of HRL which we were WRONG about in our Tuesday 5/10 Game Plan in which we felt a move above the 40 number would be a positive. Even best of breed name MCD lost 4.9% in above average weekly volume. There seems to be a strong tug of war going on with the bulls and bears as many point to the fact that we have not seen new all time highs in one year. True one likes to see consolidation, but the type we are witnessing presently may be a little longer than investors want to see. Even the big managers have opposing outlooks with Icahn and Soros betting on some big drawdowns. Others like Tepper and Birinyi are more optimistic in there forecasts, although Lazlo remains almost 25% in cash.

Markets finished off the lows once again Friday to close out the week, and if one takes anything positive away from the action is was the technology sector overall that gained the most. The XLK rose 1.2% to best all of the major S&P groups. The technology ETF's daily chart looks like it is sporting a bullish inverse head and shoulders pattern that began early last November. The right clavicle is now under construction and a move through the 44.50 area would be a breakout and target a move to the round 50 number which most likely put the Nasdaq at all time highs. Friday the utilities and staples sectors were the worst performers. The Nasdaq did outperform the S&P 500 for a second consecutive week, an encouraging sign, rising 1.1% compared to the S&P 500's .3% advance. On the daily chart of the Nasdaq one has to be aware of the lower highs and lower lows put in since the intraday high of 5176.77 and one may see a double bottom with handle pattern developing but the handle that began the week ending 4/22 is a bit long in the tooth. It still has work to be done, but some greenshoots are being born. The oil/equity correlation seems to be fading away with each passing day, but one normal relationship that I am keeping my eye on is the dollar/oil group. The UUP is now on a 3 week winning streak and higher 4 of the last 5, but the XLE is ignoring that fact. The energy ETF rose 1.8% this week, more than doubling the UUP's gain of .8%. The energy sector is also overlooking the possibility of interest rates gaining to, and that has put a bid under the financials. For the week it put in the second best advance with the XLF higher by 1.4%. Referring to the earlier greenshoots comment below we look at the chart of the SMH ETF which easily outdid the benchmarks with a healthy 5.1% weekly gain, even as its largest component INTC lagged with a .8% weekly gain. INTC is still 15% off recent 52 week highs but is holding the round 30 number well and the last 3 weeks have all CLOSED very taut within just .24 of each other suggesting a big move is coming up or down.

Markets finished lower Thursday but well off session lows at lunchtime. The Nasdaq was off 1.25% and managed to claw back to end up declining .6%, and in the process perhaps registered a bear trap as intraday it broke below a flag pattern. Today the tech heavy benchmark recorded a doji candle which often indicates confusion and a potential trend change. Additionally it was a bullish harami and when a small real body (doji) is recorded it often strengthens the signal. The index also found support near the bullish piercing line candle on 5/6. Heading into Friday it is still looking at a potential 5th consecutive weekly loss (last occurred during a 6 week losing streak between weeks ending 10/12-11/16/12). The last 2 and this one have all CLOSED thus far very taut all within just 23 handles. That tight type of trade normally is followed by a strong move. Will it be up or down? At the expense of sounding like a broken record, if technology as a whole can get moving, new highs for many benchmarks is in store. We did see some nice earnings reactions from some "old tech" names like CSCO and CRM gaining 3.2 and 4.1% respectively. Thursday however, the clear winning sectors hailed from the defensive in nature utilities and staples each rising 1%. Surprises from the struggling retail group were a nice development with the stocks of AEO and URBN higher by 18.4 and 13.9%. The 800lb gorilla in the space, WMT advanced almost 10% in the best daily volume of the year thus far. In the laggards will be laggards conversation LB was the star Thursday as it reported earnings that were as skimpy as some of their product line. It fell 5%, but did find temporary support at the round 60 number.

Markets were a bit bifurcated Wednesday with the Dow and S&P 500 essentially flat and the Nasdaq rising .5%. The Nasdaq has slowly started to show signs of potentially taking a leadership role, which would be a very welcome sign for the bulls. The tech heavy index is about to record a bullish golden cross, which is not as strong a move as many think, but also a bullish crossover on the MACD. To be balanced it has held the round 4700 number since 5/6, but one could make the case it resembles a bear flag pattern. A break below could have a measured move 270 handles lower. The financials were easily the best performing sector today with the XLF jumping 1.75%. The ETF is on a 3 week losing streak falling 3% in the timeframe, but overall is acting better since a bullish morning star pattern completed on 2/12 at the round 20 number. It has held its 200 day SMA very well ever since taking it out on 4/19, and new anticipation of higher rates into year end has the group energized. Conversely the view that rates will accelerate going forward put a bid behind the greenback which softened the energy names (interest rate sensitive utilities slumped 1.9%). The XLE lost 1% and many bears I hear point to the continuous bankruptcies, but in my opinion that is a glass half empty look at best. The optimist says we are separating the weak from the strong and that is healthy behavior. We have heard some bullish outlooks on the group with GS and PJC making the case for higher prices, and to the contrarian that may be concerning, but the price action is irrefutable. A lot will depend on the direction of the dollar and the UUP has risen 10 of the last 12 sessions and is looking for a third consecutive weekly gain up .7% headed into Thursday. Stick to best of breed names like XEC which is now just above retesting a 115.79 cup with handle trigger originally taken out on 5/16 (below is how we profiled the name in our Friday 5/6 Game Plan).