Monthly Archives: May 2016

Markets finished firmly in the red Wednesday giving back a good chunk of Tuesdays gains. None of the benchmarks really saw the light of day and the Nasdaq fell 1% and S&P 500 by .95%. The Dow which is cap weighted was hurt by DIS and fell by 1.2% given the triple digit price of the stock (notice bids did come in just above the par number and the 50 day SMA). It was the energy sector that acted the well today with the XLE rising by .3%, and the utility group bumped higher by .4%. The correlation between equities and crude did not behave Wednesday and perhaps it is a one off, or maybe not? The retail sector continues to be pummeled with the XRT slipping more than 4%, not long after a golden cross which many seem to get excited about. The ETF has declined 4 of the last 5 weeks and this week headed into Thursday has softened to the tune of 2.9%. We are big proponents of the round number theory and below is the chart of a former best of breed player JWN that we highlighted in our Monday 5/2 Game Plan. The stock is lower 4 of the last 5 weeks with all 4 down weeks CLOSING at the lows for the weekly range including the weeks ending 4/8 and last which slipped 10.6 and 6% respectively (this week is lower by 5.4% so far). Of course JWN is a mall based retail name, and others that were taken to the wood shed were M which lost 15% after an ill received earnings report (FOSL and PVH slumped 29.1 and 7.5% as well). This has been an ongoing theme with the likes of RH now on a current 10 session losing streak and lower by 68% off recent 52 week highs, not a typo. Perhaps one could say that the S&P 500 is still just 3% off recent all time highs, but that is getting a bit long in the tooth. GDP numbers tell the story.

We have been pounding the table that in order for this rally to continue, tech must participate. There has been very little overall evidence of that, but some small greenshoots are developing. Software is beginning to firm (would love for semis to engage) and that will be a welcome signs for the bulls. Below we look at two recent examples, precisely how they were written about in this Tuesday Game Plan. Both have outperformed Wednesday thus far. NOW as of this writing is grappling with the round 70 number, but the chart displays the power of the gap fill. The trigger was just missed being hit, but it has acted well after Mondays bullish inverted hammer candle which was an engulfing candle as well. Stocks that can be bought after recent gap fills are NOW. NOW is a cloud play lower by 22% YTD and 9% over the last one year period. Earnings have been well received with gains of 14.1, 6.7 and 3.9% on 4/21, 10/22 and 730 and fell 15.7% on 1/28. The stock is lower the last 2 weeks dropping 8%, but it did stay within the week ending 4/22's range. It has recorded a strong weekly return the last 3 months and one should expect on sometime in May to continue the trend. NOW rose 15.5, 8.3 and 9.3% weeks ending 4/22, 3/11 and 2/19. Being 26% off recent 52 week highs and higher 8 of the last 12 weeks we like the risk/reward following last Fridays gap fill from 4/20. Enter on a slight pullback at 67.

Markets powered higher Tuesday with broad participation from a variety of sectors. It was pretty uniform across the board with the Nasdaq, S&P 500 and the Dow all rising by 1.25%. It was energy, materials and the industrial groups that produced the best gains, and what bulls like the three lagging groups came from the defensive staples, healthcare and utilities (they all advanced Tuesday). We could provide any number of adages, like "bull markets will not let you in", "fear of missing out", but in the end it really just boils down to price action. One can put the fanciest charts out there with the most exotic indicators, however PRICE action is all that is relevant. Monday we spoke of the markets clever ability to dodge pitfalls and thrust higher (below is the chart of GPS which was highlighted in our Tuesday 4/19 Game Plan). Headlines recently have included the big hedge fund managers out there, be it Carl Ichan who reportedly has a massive short position, Druckenmiller pleading with investors to buy gold. Perhaps the one thing that worries me the most is the volatility in crude. It seems to go higher or lower to the tune of 2-3% each day and that type of erratic trade is normally associated with market tops. If the correlation with crude is to continue this is something investors should keep in the back of their minds. One could argue that oil is elevating on non economic news, whether it is the Canadian fires, or Nigerian supplies dwindling on regional unrest, or Saudi policy changes, but again PRICE action is all that matters. If crude is topping, and that is a big IF, it could put a wrench in the indexes climb, but for the time being one must respect probably one of the oldest adages, "the trend is your friend". Anyone who would like a full copy of Wednesdays Game Plan email me at chartsmarterblog@gmail.com.

Tech raised its hand Monday and bulls welcomed the gesture somewhat. It has been to few and far between instances recently, but if the Nasdaq can begin to take charge on a more consistent basis perhaps this rally off 4200 still has some legs. The Nasdaq rose .3% today, off intraday highs, benefitting from nice moves in AMZN, GOOGL and biotechs gave the benchmarks some nice tailwinds. Small caps cooperated too with the same gain posted by the Russell 2000, and the S&P 500 was higher by .1%. Indexes are trying to shed off the crude "training wheels" and thrive on their own. Today was a very good start. Oil was firm premarket but reversed hard recording a bearish engulfing candle, but individual names in the sector acted well. Healthcare and retail groups led the charge today. Healthcare names still have a lot to prove as many charts have been hurt. Even a leader like FPRX (chart below) had a recent breakout unravel and we know the best breakouts tend to work out right away. Investors still seem to be concerned about land mines that are popping up with some regularity. FLR was looking solid until an earnings shortfall last Friday dropping more than 5%, but did bounce just above the very round 50 figure. Former best of breed security play PANW is still 30% off its most recent 52 week high, its 200 day SMA is still sloping lower and it lost almost 10% last week. In the retail arena former general GIII is more than 40% off its recent 52 week highs and on a current 3 week losing streak. It is approaching the round 40 number for the third time since last November and looks like a bearish descending triangle is maturing rapidly. I can go on (GPS after the CLOSE) but I think you get the picture. Despite many potholes, for now the market has a magnificent navigating system and seems determined to leave many behind as it slowly climbs the proverbial wall of worry.

Markets overcame some early weakness following a weak employment report and went out on highs for the session. The Nasdaq rose .4% and the S&P 500 was not far behind gaining .3%. On a weekly basis however the S&P 500 fell half of what the Nasdaq did dropping .4% and has now outperformed for 3 straight weeks. The IWM lost 1.4% for the second consecutive week, but Friday recorded a bullish piercing line pattern candle precisely off a rising 50 day SMA. One of the big takeaways from this week was the weakness in the energy space with the XLE, ending a 4 week winning streak dropping 3.3%. Of course their is an inverse relationship with the greenback and a look on the UUP chart below, shows some positive developments. The ETF is on a 4 session winning streak following bullish piercing line pattern Tuesday at support in a falling wedge pattern. To further support the positive narrative, volume was the heaviest this week in the last 7 months. The dollar rallied today even in the face of the employment report that makes a rate hike in the near term unlikely. Good reactions to bad news is something that always should be paid attention to. Retail continues to be an issue and some high profile names have put up some dreadful weekly returns. LB lost 11.1% this week, and 11.5 and 8.6% the weeks ending 2/5 and 4/8. The former best of breed is now 31% off recent all time highs at the very round par figure (it registered just one daily CLOSE above 100 on 11/4/15). Interestingly JCP is also 31% off its recent 52 week highs and slumped 11% this week as well, and is on a current 7 week losing streak. Not surprisingly SHLD fell almost 18% this week and former generals BKE and LE surrendered 9.5 and 8.9%. The consumer seems to be spending more of their money on stocks than clothing merchandise, as the market remains the "only game in town".