Consumer Staples - A Brief History
During 2015 - 2016, investors piled into many consumer staple names in a vicious search for yield. During this time, the $XLP outperformed $SPX. The out-performance peaked in February 2016 and has been under performing on a relative basis ever since. Beginning in late May / early June, the sector became oversold and had what I believe is a sharp snap back rally.
Where are we now?
The chart below shows the relative performance of XLP vs SPY. You can easily see the relative performance is back to the downtrend line that has been firmly in place for over a year. I question if XLP has the horsepower to break through.
Drilling down on some names
Yesterday an option trade piqued my interest. A whale came after Kraft Heinz with in the money Aug 65 Puts 3500x + paying $3.70 ask. Overall, PUT volume was 4x that of CALL.
That got me digging into the big XLP names. There are quite a number of big names that have key characteristics that give them a bearish set up.
Charts of Hershey's and Kraft Heinz Illustrate the point
Names for further study
HAIN / BUD / TAP / SJM / GIS / CL / KMB / CPB / PG
You will find the charts of these names showing many of the characteristics of those above.
IMO the downtrend in relative performance of XLP persists and the move over the last 6-8 weeks was an oversold bounce. Being earnings season, most of these names report in the next few weeks. Keep that in mind when contemplating any potential trades.
Thanks for reading; hope it helps
Dr. Copper rug pull
Such beauty and power in a nuclear bomb blast. Photos like this almost make you forget the carnage going on below. The Copper bomb hasn't detonated yet, but the fuse has been armed and some folks are looking for their blast goggles just in case.
Last week I posted about the technical developments regarding copper's recent moves. In that article, it was pointed out that the technical price objective based on the chart pattern was $2.60 / $2.65 on a measured move basis.
With fresh tariff-related news flow, Copper has made a substantial 3% down move overnight from yesterday's close. The chart below shows the approximate area where the futures are currently trading. As you can see it is working its way down to an initial support level.
The next big support level shown on the weekly chart is a band between $2.40 and $2.47. While the current sell off tells us that Dr. Copper is worried about the world economic outlook, a failure at $2.40 would have folks cleaning out their basement safe rooms and checking on their inventory of freeze dried staples. We really don't want to go there.
Chart School - PPO Momentum indicator
Notice the PPO momentum indicator in the second panel from the top. Look at how meaningful the zero line is. The zero line acts as both support, resistance, and a toggle point between bearish and bullish mode. Notice how once Copper momentum dipped under the zero line in late Spring 2011, that zero line became powerful overhead resistance. It kept you in a bearish trade for over 5 years. In mid 2016, it got you out and signaled that something different was happening.
Go look at the PPO on your favorite handful of stocks. Look at the positioning of the PPO in relation to the zero line and what price is doing. At the very least it lets you know when to pay attention and that important things are happening, especially in longer time frames.
Thank you for reading! Hope it helps.
Defense Sector Overview
A quick trip around the defense sector and its pretty easy to see that the major defense contractors like $LMT, $NOC, $GD, and $RTN have hit some turbulence over the past 4-6 months. Lots of double tops have executed and most of these names now find themselves under their declining 200dma's and with substantial over head resistance.
Here is a daily chart of $DJUSDN, the Defense Industry group.
It serves as a good snapshot of what is happening. Price below the 200 with downtrend resistance and overhead resistance above. Sure the momentum and RSI have turned up with the recent bounce, but I believe the overhead resistance right here , right now will prove to be too much to overcome. Certainly a tough place to take a shot on the long side in my opinion.
General Dynamics - A clean look at an objective short
The same general picture holds for $GD as mentioned above, but here, at least to my eye, is a clean look at an objective short with a stop near by.
Here's what I see:
That's what makes markets. I'd love to hear your thoughts
Shoot me a note at firstname.lastname@example.org or leave a comment.
Annotated Daily Chart of $GD HERE
This morning, I take a look at the latest 5 week rotation of the SPDR sectors along with a number of popular tracking ETF's for various segments of the market.
Purpose and Usefulness of the Rotation Studies
In my world view, the direction of the broad market dictates roughly 60% of a stocks expected move, the sector dictates 20-25%, and the specific stock dictates around 15%.
If you can focus your bullish stock selections in leading and improving sectors, I think your odds are much improved in finding winners.
5 week SPDR Sector Rotation
The graph shows the path of each sector over the past 5 weeks relative to the benchmark of the SPX. You can also easily see the relationship between the sectors to each other.
The table below shows the absolute performance of each sector.
Popular ETF 5 week Rotation Study
I took a number of popular ETF's across industries to see what their recent rotation looked like. Some interesting findings. Again, the benchmark was SPX
Biotech ETF's IBB / XBI make bold moves into the leading quadrant. Retail ETF XRT looks strong. IYR maintains its strength while Semiconductor ETF SMH makes a small improvement.
Homebuilder ETF's XHB and ITB make slight improvements.
Oil services ETF OIH falls hard from a leading position. Banks, Gold, Gold miners, metals & Mining, and EEM weakened over the study period.
I hope these rotation studies give you some added insight to how markets are behaving and give you solid clues on where to hunt for good prospects.
Ralph Lauren and Foot Locker have very similar recent price action and chart set ups.
Annotated Daily Chart of $RL HERE Annotated Daily Chart of $FL HERE
Disclosure: No Positions at this time
Ciena Corp ( $CIEN ) is a maker of Telecom Equipment. It's industry group is $DJUSCT. Peers include $ANET / $CSCO / $JNPR / $ARRS / $UBNT among others
The Bullish Case for $CIEN
These technical factors make for a nice bullish set up on the weekly chart
Annotated Weekly Chart of CIEN HERE
Thank you for Reading!
Good Luck and Happy Hunting!!
Short and Sweet
A couple of weeks ago I had my eye on $JWN for a potential breakout. That trade never triggered with price pulling back and oscillating for a couple of weeks. Now price has taken out resistance rather convincingly, RSI is breaking out, and the PPO momentum indicator has had a bullish cross. Just as important, I have a clear line in the sand to shoot against.
I bought the July 20 $52.50 calls for $2.55. JWN has earnings after July expiration. Hoping for a run up into earnings. My stop is $52.50; just below prior resistance which is now support
January 2016: In the midst of a Global Deflationary Spiral, the commodity index $CRB was below support that had been in place since 1973. Oil was trading sub-$30 and Copper was at post crisis lows of around $2/lb.
June 2018: In the last 30months the $CRB has bounced from 155 to 200. Not really very much despite oil's recent run. Copper surged from $2 to $3.31.
Copper falls 11% in 3 weeks
Since June 11, Copper has fallen 11%. Today July 5, Copper futures indicate its off another 1.5%. From the chart below we can see price at key support at $2.875. It's gotta hold here. On a measured move basis from the double top, price is projected to move into the low $2.60 area; another 11% lower from here if this last bit of support is broken.
The Monthly chart of Copper shows a darker picture. Price retraced 50% from the 2011 high of $4.60ish but is now rolling over. In my experience these big sweeping trend changes on a monthly chart are so important. They just don't turn on a dime. I think copper goes much lower.
The tradeable ETN for Copper is JJCTF
It's not just Copper - Look at Base Metals ($DBB)
Below is a weekly chart of the base metals ETF $DBB. You can clearly see price dropping out of the rising uptrend channel that has been in place since January 2016. Going lower from here.
I am bearish on commodities near-term. Aside from a fairly productive chart on oil, everything else is pointing down. Is it all trade talk related? No idea. I just don't see any bullish charts. I am curious about the meager bounce over all. Is demand that tepid or has over-supply simply swamped the system?
Keep an eye on this stuff. They call it Dr. Copper for a reason. Its often a precursor / canary in the coal mine for other markets. Let's see what the summer brings.
Technical Picture on $GLD
Earlier this year GLD was consolidating in the upper third of its recent trading range. From the Daily Chart of GLD below we see that since April GLD has been selling off hard with the re-emergence of US Dollar strength.
That said, the breakout of the steep descending wedge right at key support is bullish. Trader's wishing to go long $GLD can shoot against the recent low with a stop just below. Although they are not shown, even a modest 38.2% Fib retracement bounce measures to $122.00 and a 50% retrace is $123.36 near the 200ema.
I would use those 2 areas as initial targets.
Annotated Daily Chart on $GLD HERE
Gold Miners ( $GDX ) Technical Set up
The technical picture of the miners looks better than Gold.
Here's what stands out to me.
Trade Set up
Before considering a long on GDX I want to see the following
If the Dollar continues to be strong I think it might be tough for Gold and the Gold Miners to really crank up. If the Dollar falters over the summer, Gold and the Miners could see a nice rally.
Set some alarms for yourself for a head's up if you are interested in the set ups on Gold and the Miners.
Annotated Daily Chart on $GDX HERE
The US Dollar continues its advance as it nears taking out resistance at 95. The Euro and the main commodity currencies fell. Being a safe-haven currency, the YEN has been holding up well. Not shown is the Chinese Yuan which continues decline as trade tensions mount.
SPY 60 minute Chart - Ugly Price Action
Referring to the chart, we can see price is bound by 2 sizeable gaps. In morning trading, they quickly ran price up to gap resistance, then took a peek into the gap. That look failed and price fell apart for the rest of the day. Now price sits at gap support at the lower end of the range. We may see a small reaction off of this low, but I ultimately expect a lower gap fill to 268 followed by a retest of the most recent May low at 266.5. I am short SPY
Annotated SPY 60min Chart: HERE
QQQ Daily - Positioned for further downside
Price rolled out of the recent divergent high ( marked ) with an impulsive gap down on Monday. Tuesday was an inside day, followed by another sizable bearish engulfing candle Wednesday. I am positioned for further downside and expect a test of the 166-167 level that I have marked. It has to be noted that the gap down on Monday has left an open gap. These gaps tend to get filled; we just don't know when. Keeping an open mind with max flexibility.
Annotated QQQ Daily Chart - HERE
IWM - Price going lower