Morning Comment: Energy ETF's Testing Key Support...Bitcoin Breaking Out.

We had yet another boring day in the stock market yesterday…as volume continues to come-in at/near the lows of the year….and the intraday range for the S&P 500 has been less than one-half of one percent on four of the past five trading days!....We do get some inflation data this morning with the CPI number, so that could help the activity pick up a little bit…and the news out about the pausing of JNJ vaccinations over blood clot concerns could create an increase in volatility. However, it looks like most investors are looking towards earnings season as a catalyst for the market’s next move.

The vast majority of the earnings won’t come until after this week, but given that we get numbers from BAC, BLK, SCHW, C, USB, BK, CFG, SSB, PNC, and MS on Thursday and Friday, we should certainly get enough information to help activity pickup in the financial sector.

After turning very bullish on the bank stocks early in the fall of last year, we became a bit more cautious about the group about a month ago. Very simply, we worried that the bond market had become very oversold…and long-term interest rates and the yield curve and long-term had become quite overbought on a near-term basis. Since that time, the KBE & KRE bank ETFs fell about 9% into the end of March, but they have recovered about half of those losses over the past week or so.

Therefore, the bank ETF’s stand right in the middle of their recent one-month range, so the earnings results/guidance we get later this week is going to be very important as to how the group acts as we move through the rest of the 2nd quarter. Thus, we’re going wait to see how they act after those earnings releases hit the news-tape on Thursday and Friday.

In other words, we want to be a little careful here on the bank stocks. If they response is not a good one, we’ll be able to step aside for a while longer before we move back into the group in an aggressive manner. We can afford to leave a little bit on the table if they rally further after these earnings reports…….Let’s face it, since we jumped into this group in a very aggressive way back in September & October…we can afford to miss a little bit of upside movement over the very near-term. (Since we timed our initial entry point so well…and the KBE rallied 95% over just 6 months…we can afford to miss 1%-2% upside right now.)

The other group that we turned very bullish on back in the fall (just a couple of weeks after we turned aggressively bullish on the bank stocks) was the energy sector. Just like we did with the banks, we also turned a bit more cautious on the energy stocks in mid-March…when the underlying commodity (WTI crude oil) became extremely overbought on its weekly RSI chart. Sure enough, both the XLE energy stock ETF and the XOP oil & gas ETF have rolled over in the last month. The XLE is now down 10%...and the XOP has fallen 15% since those mid-March highs.

Therefore, we were able to capture the vast majority of the 93% rally in the XLE and the 129% rally in the XOP….AND we were able to protect those gains by taking some profits at the top and telling investors to back-off from the group at the right time. Of course, we did not say that investors should exit their full positions in the sector by any means. We still liked the energy names on a longer-term basis…and we still do. However, our work told us that it was getting ripe for a material pull-back…and that has worked out quite well.

Okay, now that we’ve separated our shoulders by patting ourselves on the back, we want to highlight that the energy group still looks quite dicey.After a late March bounce, both the XLE and XOP have rolled back over again this month…and they are now testing their March lows. Actually, in the case of the XOP, it has already broken slightly below those March lows. Therefore, the recent moves in these two ETF’s put them at risk of making their first “lower-high/lower-low” sequence since October. These moves have also taken them below their trend-lines from those October lows.

We do admit that yesterday’s “lower-lows” are only slight ones so far (especially for he XLE), so we don’t want to get even more cautious…too quickly. However, there is no question that the action in the energy stocks has not been good over the past month…and thus if they see any more downside follow-through over the near-term, it’s going to mean that we’re going to see a relatively meaningful decline before we get another great entry point for this group.

Looking at the chart on the XLE, closed slightly below its 50 DMA (which provided good support in early February (and slightly below its trend-line from the October lows. More importantly, it closed within $1 of its March lows. (One could call those March lows of $46.85 as the “neck-line” of an “head & shoulders” pattern as well.) As for the XOP, it DID close below all three of those support levels already. Therefore, if we see any downside follow-through at any point this week, it would raise a big yellow warning flag on the XLE…and the energy stocks in general. (First two charts below.)

Finally, we want to highlight that Bitcoin is breaking above its March highs this morning. Bitcoin can obviously be VERY volatile, so it could roll-back over by the end of the day. In other words, we cannot get too excited quite yet. (It’s always important to see its closing level.) If it rolls-back over during the day today…especially if it rolls-over in a violent way…it will quickly shift from a bullish situation to a bearish one. (A major “failure” at this level would be quite disappointing.) HOWEVER, if it can hold-up…and CLOSE above those March highs in something more than just a very slight fashion, it’s going to VERY bullish for the cryptocurrency.

Bitcoin has not done a whole lot over the past month or more, but if it can see another new high…especially if it comes during regular trading hours (and not on the weekend)…it should attract a lot of momentum money once again. Therefore, we could see Bitcoin rally to the $70,000-$75,000 very, very quickly.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Apr 13, 2021 — 8:04 AM
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