Chartsmarter Insights

Banks Looking Bright: Rotation continues in the market and on a YTD basis heading into Wednesday “value oriented” sectors were still firmly in control. Topping the list is healthcare higher by 8%, followed by the financials. Below is the daily chart of the XLF and we have been constructive on the space since the bullish piercing line candle. That set off a nice run with the fund advancing 9 of the next 10 sessions. That day also filled the huge election-related earnings gap from 11/5. The best thing this could do now would be to consolidate after that robust run. Candles have been instrumental near-term tops with a couple of dojis, the first a gravestone doji on 11/27, which sent the ETF scurrying lower 11 of the next 14 days. This time around, at least so far, it does not seem to be affected by the one last week. We frequently like to check in on the top holding BRK/B, at nearly 12%, as this will have a big impact on the group. Wednesday it rose 5% and is approaching a double bottom with handle pivot of 475.03. Fellow top 5 holding V is sporting a solid MONTHLY look, even though it has lagged rival MA over the last decade. The break above the bull flag trigger of 275 carries a measured move to 380. Both these names can keep a bid under the sector if they keep their solid uptrends intact.

Rough Diamond:  As the unkempt trade between the very round 19000-20000 numbers rambles on some new bearish patterns are presenting themselves. Remember this awkward, erratic action is often associated with topping behavior, and when the tech-heavy Nasdaq makes contact with 20000 some bearish candles have been produced. Notice here the spinning tops on 12/12, 12/17, and 12/26 followed by a doji on 1/6 and then finally a dark cloud cover on 1/24. These all indicate fatigue and it feels like the benchmark is running low on stamina. I have spoken about this in lengthy fashion as of late, but I will be open-minded if this 20000 barrier is taken out to the upside as I know markets do their best to confound the most. The WEEKLY chart I have mixed emotions with the bearish RSI divergence with a higher low during last summer and Q4 as PRICE made a higher high. But one could make the case for a bull flag and a break above 20K carrying a measured move to 23000. Technology overall via the XLK is the worst of the major 11 S&P sectors YTD (coming into Tuesday and only one negative). Bulls would say it is likely oversold, bears that the pain could be just beginning. 

Google It:  This week may be a little lighter on the earnings front than last week, but some significant names are REPORTING numbers. AMD is lower 8 of the last 11 months and it would not be surprising to see it move toward the very round par number in the near term. It is not encouraging that it is now well underneath the former cup with handle breakout pivot of 132.93 from December 2023. SPOT is a European communication service play that has behaved brilliantly in the face of a soft tech space and is now above a cup base trigger of 506.57. A move back toward that level if a negative earnings reaction occurs should be bought. Perhaps it bodes well as NFLX scored a solid beat and was stopped cold right at the very round 1000 number, registering a bearish filled-in candlestick on 1/22, but has since carved out a bull flag formation. A break above 1005 could see a measured move to 115o. Below is the daily chart of GOOGL which is just above the very round 200 number, with 3 consecutive CLOSES above the figure and has broken through the bull flag there. The WEEKLY chart broke above a cup base trigger of 191.38 and bears had ample time to disrupt it but that never happened. Look for a measured move toward 234 sometime in the first half of 2024.

Defensive Posture: As the tech-heavy Nasdaq once again has issues at the very round 20000 number and upside gap fill from the 1/24 session is it time to park some capital in a conservative stance? Consumer staples get very little attention but may be deserving of your funds. Notice seasonality wise February tends to be a flat month but perhaps investors will be looking forward to March which over the last 4 years (recency bias) has easily been its best advancing every March since 2021 by an average of 4.5%. Of course, good stock pickers can provide alpha there and outperform. The WEEKLY chart below of the XLP shows a possible gap fill and then a double bottom base can set up. In January the MONTHLY chart successfully retested a bull flag breakout. Looking at a couple of names inside the space that look somewhat attractive include HSY and EL. EL is now at an inflection point and a move above 85, both resistance and support the last 6 months, next week could see this push swiftly toward the very round par number. And what happened with all the HSY euphoria surrounding MDLZ? Market participants as usual were reckless and now that the jubilation has subsided could it be worth another look near 145, where it previously broke above a MONTHLY bull flag.

Goliath Energized:  Amazon and Tesla will always dominate the discretionary conversation as they make up the lion share of the XLY. Between the two of these heavyweights, they make up almost 40% of the ETF. As they go so does the fund. But is the XRT looking to turn the table on the XLY? The daily chart of the XRT below is saying to the XLY to hold on as it may be waking up, not long after failing to break above a bull flag formation. It broke forcefully above a double-bottom trigger Thursday and it is showing that the consumer group has solid breadth and seeing some rotation into it. On a YTD basis they are both up in the 3-4% neighborhood, but the smaller (David) provides a larger dividend yield of 1.5%, compared to the XLY at .7%. The WEEKLY timeframe looks attractive as well as its recent pullback successfully retested a prior bullish ascending triangle breakout. Its MONTHLY chart looks to keep the one month up and one down since last March intact as a bullish hammer takes hold with just Friday left in January. Par feels like it will have a magnetic pull into the second half of 2025 where it last touched with the bearish shooting star candle in November 2021.