QQQ Still Leads Year-to-Date - Playing the Pullback in Healthcare - Consumer Discretionary Stocks Come Alive | Art's Charts

.... One Day does not Ruin the Year
.... Drastic Declines are Part of the Uptrend
.... Stock Picking Goes in Waves
.... Stocks to Watch: ADP, ARRS, FISV, LH
.... Playing the Pullback in Healthcare (BIIB, BMY)
.... Auto and Restaurant Stocks Join the Upturn ....

One Day does not Ruin the Year

Tech stocks were slammed on Wednesday with the Nasdaq 100 ETF (QQQ) falling a massive 1.74% and the Nasdaq 100 EW ETF (QQEW) losing 1%. As with the 20% decline in Bitcoin, chartists should put these declines into context. QQQ is still up over 30% year-to-date and leading the broader market. SPY is up 19.2% and having a great year, but its gain is a third less than QQQ. The S&P SmallCap iShares (IJR) and Russell 2000 iShares (IWM) are up double digits in 2017, but their gains are less than half of the gains seen in QQQ. High flying tech stocks are prone to sudden and sharp pullbacks because there are some juicy profits to be had.

Drastic Declines are Part of the Uptrend

The next chart shows QQQ with the 2-period Rate-of-Change. Notice that QQQ fell over 2% five times this year and rose over 2% three times. Even though the "drastic" declines outnumber the "drastic" advances, QQQ has managed to record a 52-week high in each of the last 11 months. The green dashed line shows the 50-day SMA with breaks in July, August and September. These breaks provided opportunities to partake in the long-term uptrend. Nobody knows how far or long a pullback will last, but a pullback to the 50-day SMA should be viewed as an opportunity when the long-term trend is up.

Stock Picking Goes in Waves

I highlight individual stocks every week with chart setups that I deem noteworthy. The vast majority were bullish setups because we are in a bull market and I want to be on the right side of the market. Despite big gains in the broad indexes in 2017, some of these picks turned out dreadful. As noted on Tuesday, 118 stocks in the S&P 500 were 20% or more below their 52-week highs and another 118 stocks were within 2% of a 52-week high. These contrasting numbers show that stock picking has been tough going. This is why portfolios and position sizing are important. We need to think about how are portfolio is structured and distribute the sector/industry weights to insure diversification. We also need to spread the risk with relatively small positions. The choice is yours, but I usually allocate 5% or less to a single position. Losses still hurt, but they will not be devastating and this is the key to preserving mental energy.

Here are some of the highlights and low lights. OLED, ZTS and RMD were featured in mid October and these three are up double digits. SCHW and ETFC were featured in mid November and they broke out over the last two weeks. XLF, BAC, C and JPM were featured with bullish engulfing patterns above support zones on November 16th and these four are up nicely over the last two weeks. That was the good wave. Some stock setups are flat since featured and some are down sharply. The bad wave includes MRK (-15%), BSX (-8.5%), WDC (-11.5%) and SLB (-9%). I can also throw in recent bullish setups for Netflix (-5.5%) and KLAC (-6.35%). It is quite easy to go from genius to blockhead in this market.

Stocks to Watch: ADP, ARRS, FISV, LH

Playing the Pullback in Healthcare (BIIB, BMY)

The next two charts capture my basic approach to trading. I am looking for pullbacks within an uptrend and time the end of the pullback. Notice that BIIB and BMY are both in long-term uptrends after big breakouts in August. Both fell sharply in October and retraced 38-50% of the prior advance. The two stocks then firmed for several weeks and turned up over the last few days. This is the first sign that the pullbacks are ending and the bigger uptrends are resuming.

Auto and Restaurant Stocks Join the Upturn

The consumer discretionary sector has been on a tear in November with retail and housing leading. The Retail SPDR (XRT) is up 12% in the last three weeks and the Home Construction iShares (ITB) is up around 15% since late October. I am also seeing strength coming into some other cyclical areas, such as autos and restaurants. Strength in retail, housing, autos and restaurants points to strength in the US economy.