Sectors Relative to QQQ

Sector Funds vs S&P 500

Island Reversal on Utilities

Below on the utilities that look the most intriguing as short candidates. NEE has the most liquid options.

The Bear Pill, Revisited

Back in December 2021, I posted The Bear Pill. In it, I noted:

Here are charts of the utilities and consumer staples SPDRs in 2000, and then compared to technology. Utilities peaked in November and staples in December. Both made their all-time high 8 to 9 months after the dotcom bubble had burst. Between March 24 and December 29, 2000 (simply the slice I grabbed when highlighting the chart), the returns for XLU, XLP and XLK were +32 percent, +41 percent and -51 percent.

Utilities About to Take the Market Down

The greatest diamond I have ever seen is in the sector too.

Bear Market Rally Failure Signals

ARKK has to stop leading. It took out its Monday high today, negating an immediate reversal in the market rally. It has its own resistance line coming up though, and it is still not at a relative new high vs SPY or QQQ.

Animal spirits: BTC and ETH have a lot of room to run.

Tech drove the market down. It drove the rally up. If things "go back to normal" for the post-2008 bull market, tech will continue leading higher. The ratio chart of QQQ to SPY is at the perfect level for a reversal.

On the prior post, I mentioned long Meta as a possible play for a market that goes up. Look at Meta from the bearish side: if this market is going down, Meta is going to implode because it barely bounced in a 20-percent-plus rally in the tech sector. It's going to at least the $115 horizontal and maybe lower. I don't think Meta is particularly important one way or another as a signal yet. It could get squeezed higher for no reason even as the market stalls. It has to break to a new low to really give a clean bear signal, but it will probably be a superfluous signal at that point.

Another is Apple, that should not get materially higher than its gap around $173 and change.

Finally, there are charts such as XLU. Utilities got back to their high in May 2021 so rise to that area wouldn't negate a bear market, but it would be anomalous for a sector to achieve a new all-time high breakout within a primary bear market.

XLU was less than 1 percent off its all-time high in May 2021:

Of Some Utility

I'm admittedly bad with utilities. The timing on the sector is off from the rest of the market, as in it doesn't move when I expect it should, i.e. this post is not a timing one. I will say however, that XLU did not make a new high in 2000 or 2008 bear markets. It did get all the way back to its high in the May 2021 rally though. An advance of less than 3 percent takes it to the all-time high. For dowside targets, I expect the blue breaks in the next wave. If this is a major bear market, the green will eventually crack too. Utilities options are very cheap because the sector has low volatility, but as you can see in June and in prior declines, if you can time it right, catching the downside with cheap options can be very profitable.

Sector Check-Up

Healthcare (XLV) is the only clearly bullish pattern. Maybe XLU too. Tech sectors (XLY, XLC, XLK) are ugly, but hold potential. Value sectors (XLF, XLRE, XLP, XLI) look like they're rolling over. Materials and energy (XLB, XLE) both rolling over, but they are not required for a bullish move in the broader market. At this point, a rally requires their weakness.

IICS Recession Call Looking Good, Getting Ready to Call a Tradable Low

After seeing Wall Street banks debate whether a recession will start in Q4 or early in 2023, and after discussing for a couple months how a recession could already be underway, I decided to make a recession call backdated to January 2022. We're in the recession now and the second quarter GDP report will confirm.

The latest Atlanta Fed reading says it might be a great call:

I have had a rough month trading as the market chopped from bull to bear, but I think the tradable low is really taking form now. I'm almost totally long except for some doom puts on utilities (XLU). I still have XLC on, short oil, long TLT and looking to go long biotech again in size. I went long NQ with a call overnight, sold out in the morning and got back in near the low of the day.

I don't know if the low is in yet, and if I'm wrong, the low could be 10- to 20 percent lower from here. Yet, I'm a skittish bull here.

That said, let's go to the charts.

It has been a brutal couple of days in the market, but IBB has held its 50-day MA.

XLC still holding for a potential bullish squeeze.

TLT looking good here, but not out of the woods yet.

Here's USO, the crude oil ETF. It is at support.

XLU has a very bullish candle. Dumping that position as I type.

Missed 10-Bagger: XLU

Tim Knight did a premium post on XLU two weeks ago. The price cratered early and bounced. A relatively high price after that was $64.50, so let's go with that. It closed at $69 per share on Friday. I skipped this one because I expected areas such as tech and biotech would lead the rally and because I thought XLU might not bounce much with rates stuggling to rise. I know, however, that XLU options can be extremely profitable in surprising moves because they are priced for low volatility. I remember checking the options, but didn't think XLU would pop enough for a trade. It did. Going out a few dollars on a monthly call expiring in July (like say $68) would be be more than a 10-bagger, as would many other strikes. Point being, big money can be made when the market is "mispricing" the options becuase it doesn't appreciate the risk of it blowing up or down. Whereas stocks like GME and TSLA have huge premiums baked in, many stocks and funds the market is sleeping on can deliver huge returns if you have the timing right.

Bye Utilities

XLU came near a resistance line that was formed between December 2007 and March 2020 peaks. Interesting as a hedge because it can pull back when the broader market rallies. The peak in utilities, healthcare and staples is the last sign of a bear market being underway. They all fell sharply the past two days, but it's too early to say whether the "everything goes down" phase of the bear market is beginning.

Update: Maybe the bulls are done. ZH: Retail Flows Turn Negative As Last Market Bull Capitulates