Do or Die Time

Alfonso Depablos, CMT
February 28, 2024

From the Desk of Alfonso Depablos @Alfcharts

When assessing the overall market, we are always asking a lot of the same questions. One of the more common ones is, "how are the laggards doing?"

Many times, these will be the culprits of the last bear market. Other times, they are former leaders that have lost their way.

For a healthy and sustainable bull cycle to take place, we eventually need these laggards to participate.

For the 2021 and 2022 bear, speculative growth was the poster child. 

We’re talking about biotech, the ARK funds, the IPO index, online retailers, etc. These groups were absolutely decimated. 

Not only did they experience some of the worst bear market drawdowns, but in 2023, when new leaders emerged, and many areas of the market began to move higher, these laggards continued to struggle.

Fast forward to today, and these groups are still repairing the technical damage from the prior cycle. With that said, the seeds have been planted for some epic bearish-to-bullish trend reversals.

We think these transitions are happening now. Let’s hit the charts and talk about it.

Here’s one of the most speculative groups out there, the SPDR S&P Biotech ETF $XBI:

XBI has been carving out a massive reversal pattern since the first quarter of 2022.

Notice how the index has tested the upper bounds of this range and failed a handful of times over the past two years. 

Each time, more and more overhead supply is absorbed. And because of this, the odds of breaking through increase with every additional test.

Yesterday, XBI printed a monster breakaway gap and achieved its best single-day performance since November 2022. 

This is what we call a decisive resolution. 

As long as we’re above 94, the path of least resistance is higher for biotechs.

Next, we have the Renaissance IPO ETF $IPO:

This index of newly public issues is home to some of the more speculative growth stocks in the market. 

And just like the bios, buyers are finally taking control this week as IPO reclaims a critical resistance level around 37.

We can use the pivot highs ~38.70 for confirmation. 

Next is the Mobile Payments ETF $IPAY:

The 200-day moving average is curling higher as price surges through a shelf of former highs.

If we’re above 47, the trend is higher for mobile payments.

Here’s another risk-on index working on a multi-year bottoming formation. This is the Online Retail ETF $IBUY:

If we’re above 55, the reversal is in, and the bias is higher for online retail.

So, what did we learn just now?

From biotechs to online retail, we’re finally seeing some of the laggards complete trend reversals. That’s great, but it’s bigger than that.

These four charts represent some of the most risk-on stocks in the broader equity market. The kinds of groups that have not participated in what has been a historically thin bull market.

As we move into the middle and later stages of this bull, we absolutely need to see breadth improve and more and more stocks join the party. 

We’ve been saying this since last year. 

It is do-or-die time for these underperformers.

And for now, they are doing it in a big way.

What are some other things that are probably happening in an environment where these groups are breaking out?

Important indexes like the Small Cap Russell 2000 and the ARK Innovation ETF are likely completing trend reversals as well.

Breadth is expanding down the cap scale.

Investors are moving further out on the risk spectrum, favoring more speculative assets. 

The offense is on the field. 

Investors are making money on the long side.

Who’s ready for it?

As always, we love to hear from you, so shoot us a note and let us know what you think.

Alfonso

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