Breadth Narrows, Software Shines: Fortinet, Edwards Lifesciences, UBS In Focus

0:09Justin Nielsen:Hey everyone, it's Ali Coram and welcome to Stock Market Today for Monday, August 31st. We saw the Nasdaq and S &P 500 close off their lows for the day, but perhaps a little bit of a concerning development on the breadth front. Joining me now to discuss that and more is my colleague, Justin Nielsen, as always. Justin, great to see you.

0:31Alissa Coram:Great to see you as well, Allie.

0:34Justin Nielsen:All right, what are we gonna be talking about today?

0:37Alissa Coram:You know what, we'll take a, even though I'm saying breadth is not what it was, there's still quite a number of stocks in different fields that are working. So we'll start with software, including Fortinet, which we do have some earnings coming up in that group of Fortinet. The earnings are behind it. That's ticker symbol FTNT. We'll also look at the medical space with Edwards Life Sciences. That's EW. And we'll end in the financial with UBS.

1:02Justin Nielsen:OK, sounds like a plan. We'll do that. But as always, let's take a closer look at the major indexes just to get a feel for how we should perhaps be thinking about overall portfolio exposure, how aggressive or defensive we should be. That's, you know, one of the main reasons why we look at the indexes, right? We want to be on the right side of the overall trend. So here's a look at the Nasdaq composite on the day, closing down about 0.1%, Justin, and we are above the 21-day line. So after that downside reversal on Friday, you know, we could have seen worse action today. So we'll take a fractional decline there.

1:41Justin Nielsen:Meanwhile, the S &P 500 down about three-tenths of a percent by Sessions Close Blue Chips, down 0.7 % on the day, and small caps down about a half a percent or so. So two days in a row here below the 50-day moving average for the Russell. So that's a bit of concern, as well as what's going on from a breadth perspective. How much participation are we getting? And one of the things that we like looking at for that is the RSP. That's the equal weighted S &P 500. And this did not have a good look to it today, Justin, down 0.6 % and undercutting some key levels.

2:23Alissa Coram:Yeah, that's that bothers me a little bit because, you know, this was holding up so well. In fact, it was really hard to be too bearish when, again, maybe the AI trade was going sour, but most of your average S &P 500 stocks were still doing pretty good as evidenced by RSP being right there at highs for so long. Now it really tightened up recently and Friday's action wasn't great. The fact that it undercut kind of the lows of that tight area, but today's action was even worse, you know, cause it just, again, took out more levels, really sliced through that 21 day moving average line closed at the lows.

3:05Alissa Coram:As you said, a lot of the indexes did finish in the upper part of their ranges. You know, just a quick, a quick look. I'm seeing that the NASDAQ composite finished about 80 in the 80 % closing range. Same with the Qs S &P 500 at the 65 % or half a halfway point if you were using the true range. But yeah, the, the RSP and the Russell 2000 a lot weaker lately. And look, that's a function of what we've been seeing happening in the bond market, the dollar to a certain degree. But IWM, especially, you know, the Russell 2000 is very kind of tied to interest rates, right? It's very interest rate sensitive.

3:48Alissa Coram:And with the TNX breaking out, that's something that's going to be a concern for the Russell 2000 and the small cap stock that do rely on a little bit more debt than your big companies. So that is an issue. And we're kind of seeing that. So what does that mean for most investors? It means you, again, the sector rotation is alive and well right now. And you might just have to take a little bit of a step back, wait for some of the dust to settle to see where some of the strength is going to be. Magnificent Seven on Friday was kind of a standout. Yeah, MAGS is a great place to look for that. Even though it finished off its highs, the fact that it was up when so many things were down.

4:33Alissa Coram:But, you know, today was kind of a, you know, it wasn't down that much. It was a fairly tight week, tight day, but still, you know, yeah, a little bummed that it wasn't holding up stronger. but a lot of downside reversals happened on Friday. We expected weakness today. The fact that we closed off our lows in a lot of cases, I think was encouraging. But I don't think we're necessarily out of the woods yet. And while we are piling up days above the 21 day moving average line, there is still work to be done.

5:08Justin Nielsen:There absolutely is. And I know you and Mike Webster, our senior market strategists, are keeping a very close eye on that downside reversal. on Friday as a level to conquer on the upside, right? If you draw the line back, you know, you're good about reminding me of that, Justin. Definitely a level of interest there. So we have this range now, whether it's the 21-day or the low from that strong day that we saw on Thursday last week. And then above us, that level of interest from the downside reversal high seems like in the very short term, that's what we're looking at. But taking a step back, it seems like we could potentially be in for a continuation of this period where maybe the 21 day or even the 50 day, you never know, could fail to be a perfect guardrail.

6:09Justin Nielsen:We've talked about the late 1990s, how we had this choppy market with an upward bias. And it seems like we are dealing with some similar challenges.

6:22Alissa Coram:Yeah, it's definitely been challenging. And that's one of the reasons why I'm taking a little bit of a step back, you know, just trying not to be as involved. It's certainly also you have to recognize what's working and what's not. A lot of breakouts, that's been tough lately. And so maybe this is a market that's more about the pullbacks where you are getting, you know, some maybe bounces off of moving average lines, upside reversals, the like. And it just might be a time where you have to take your profits a little bit quicker because they don't seem to be lasting very long before that sector rotation comes and gets you again.

7:01Justin Nielsen:Exactly. Okay, we'll get into more of that sector rotation with a look at what else is going on underneath the surface. Here's software, IGV up about a half a percent on the day. I do own some of this, Justin. So this is holding up well after that explosive move last week.

7:23Alissa Coram:Yeah, this is definitely, it seems like this is where it's at, right? Right. Tech. The thing that is basically not having tech get destroyed is software. This resurgence in both the computer software enterprise area and the computer software security are the standouts to me. Just so many names as I'm going through my screens on market surge. And those are the two groups I keep seeing over and over. Of course, it doesn't hurt IGV. And I do have a position in IGV myself. It doesn't hurt IGV at all that one of the top positions is Microsoft. and that has been looking a lot stronger. This, of course, is in the computer software enterprise group.

8:01Alissa Coram:But a lot of these stocks were kind of left for dead, you know, after Anthropic, you know, seemed like it was going to take their lunch. But I like that the comeback that's happened recently has been very powerful. A lot of these have they got up above their 200 day moving average lines and like CRM that you just pulled up, you know, Salesforce, Salesforce tested the 200 day moving average line. And then it really kind of launched. So it's certainly one of those cases where the software is screaming very, very loudly. I'm not dead yet.

8:33Justin Nielsen:Exactly. And I feel like one of the reasons why you and I and other team members are in the ETF. Sure, you know, you could pick an individual name, but this very much is a group move here. And the positioning of a lot of the names aren't the ideal setups that we like to see or maybe the fundamentals on some of the ones that are really moving the most off of their lows aren't those super top tier level of fundamentals that we like to see. So in order to take advantage of the group momentum without that single stock risk, that's where some of these sector ETFs can come into play.

9:14Alissa Coram:Absolutely. And again, sometimes we still have earnings coming out. Earnings season is not over. We've got a whole slew of them, especially in the software space, specifically software security that are coming out this week. So and IGV does have quite a bit of software security exposure. If you look at the top holdings, it includes Palo Alto as one of the top groups. I mean, top holdings, PNW, Palantir is the top spot. Microsoft is up there, CrowdStrike and CRM that you brought up. So it's worth, I think, a lot of times looking at some of these sector ETFs, seeing what's moving them, seeing what's making them look strong, either for ideas on maybe places that you would rather invest.

9:59Alissa Coram:And to your point, yeah, I don't think that there's any way I could have bought CRM. But with IGV, I like having a little piece of it so that I can participate in that kind of move.

10:10Justin Nielsen:Exactly. Okay, so you mentioned cybersecurity. So we'll go to hack and look at that one. This is something that our team has identified recently as a potential ascending base type pattern. Justin, what do you think about that?

10:26Alissa Coram:Yeah, that's the way I'm looking at this myself. And in fact, when we go over Fortinet, we can kind of delve into that a little bit more. But you have, again, if you just go through the holdings here, you're going to see a lot of strength in this area, whether it's the Palo Altos, Fortinets, CrowdStrike, Okta, you know, go on down the list. And then there's some that weren't participating as much that are but are coming on a little bit stronger. I'm going to just point out Zscaler as an example here, because this is one that just barely got above the 200 day moving average line, whereas most of these have been above their 200 day moving average lines for a while.

11:02Alissa Coram:But again, with hack or, you know, your cybersecurity ETF of choice, you get some exposure to these. But I do like the idea of the ascending base. And for those that aren't familiar with that term, just a quick overview. The idea here is that when you're in a choppy market or a sideways market, when you've got an ascending base, it's this resistance to going down. And so what ends up happening is you get these pullbacks, but each pullback below ends up being higher than the previous low. And as it kind of comes up, it is able to make new highs, but and the highs are higher than the previous high.

11:38Alissa Coram:So you get kind of this forward progress, but there's just a lot of weight with the market kind of holding it down. And a lot of times if that market weight is lifted, then these ascending bases can be very, very powerful. This was something that Bill O 'Neill, the founder of Investors Business Daily, identified with a stock Redmond Industries way back in the day. Uh, and he used it again, I think, what was it 30 or 40 years later with AOL, uh, America online, which was a great position for him. Um, but it's because he had kind of studied this, uh, by looking at some of the past ones from the fifties, 1950s, uh, Boeing and monogram and so on, um, that he was able to recognize this when it came up again.

12:22Alissa Coram:So, uh, that's the way I'm looking at this. I also like the support that you got on the 50 day moving average line. So definitely worth, uh, fishing in this pond. All right.

12:33Justin Nielsen:Well, we'll have to see if this ascending base turns into a launching pad and we'll check in on Fortinet soon. Just a couple of energy ETFs to go over before we move on. Here's a look at XLE. We know the heavy weightings here are in Chevron and Exxon. This up 2 % on the day as we did see another spike in the price of oil with more fresh mid-east headlines and also OIH on the team's radar. This breaking out of a cup with handle today up 2.6%, Justin.

13:08Alissa Coram:Yeah, both of them looking very strong now. Of course, as I said, sometimes the breakouts haven't been working as much, and these are both breakouts. So that is something to be a little concerned about. I do have a position in OIH that I picked up last week as it was kind of crossing the downtrend of the handle, trying to get a little bit of an early jump on that. And instead of XLE, what I did was I went with RSPG, which is the equal weighted of the XLE, basically. Same stocks, just equal weighted instead of very heavily in Exxon and Chevron. And yeah, this one, you know, came down, kind of got support right at the top of that previous base, you know, the kind of the breakout area and jump from there.

13:55Alissa Coram:So that was, again, an area that could have been added with the pullback and the reversal, upside reversal. So definitely an area that's still looking strong. And then in addition to the just general oil and gas and the field services, which is the OIH. We also often will look at XOP for the explorers and producers just to get an idea of how those are doing. Pretty good so far. And also CRAK, which is the refiners. And I do have a position in CRAK, which has been, I think, the leader of that whole area.

14:36Justin Nielsen:So riding that energy wave, Justin. in.

14:39Alissa Coram:Yes, exactly. A little bit. So, um, yeah, so smaller positions, but, uh, again, it's, uh, you know, when, when you have multiple positions, uh, even if they're small, you got to add them up and say, okay, how invested am I in energy? Just so you're not getting overly, um, you know, invested in any one area.

14:59Justin Nielsen:Yeah. I mean, clearly that's where the money is flowing and it seems like the conversation is now about, okay, yes, we do have these occasional headlines that will jolt this space. But if you take that step back, there's been a lot of talk about how long it's going, even if there is more of a resolution, just how long things are going to take to normalize for the oil market. So that makes a lot of sense to play that space. And then quickly checking in on chips, not a whole lot new to report here. Clearly a very weak area right now, broadly speaking, in the tech sector.

15:37Alissa Coram:Yeah, exactly. This is kind of where it's not. It can't get back above its 50-day moving average line. So a concern there. And one more sector ETF we should look at is XLF, the financials, just because this has been trending very nicely above its 21-day moving average line. Came down to it again today, but it's been getting support very nicely. It had that one little dip below it, but overall, this has been looking very strong.

16:08Justin Nielsen:Okay, let's check out some stocks starting with cybersecurity name Fortinet, FTNT. So here is an ascending base on an individual stock moved in sympathy with its group last week, some earnings there. Now, right in the level that you'd like to see it top a buy point around 172, Justin. Yeah.

16:34Alissa Coram:So just kind of your traditional, whether or not you kind of looked at this as a very short cup kind of pattern or part of that larger ascending base. I think, yeah, this is, this is kind of the entry, your traditional entry. Again, we do have those headwinds that we're facing in terms of breakouts that have been failing a lot. But this is a group that, again, when you see that many setups, when you see the ETFs working. Now, a little caution. We do have a lot of the earnings behind us for this group, but we do have Palo Alto networks coming up. So that's something that you want to have on your radar because even though a lot of the information is out on this, uh, on this group, um, you, when you have such a big one, you know, coming out, you just got to be aware that it can still kind of change things.

17:24Alissa Coram:And, uh, a good example of that is, is rubric, you know, rubric was last week. And even though, yeah, a lot of people were saying, well, gosh, we kind of know what's happening with this group. Cause so many have been reported already. Um, you know, rubric, you know, really kind of took, took a dive and that did put some pressure on the other members. So it's certainly worth, again, knowing when these earnings are coming out. And this is a great time to just kind of plug the earnings cheat sheet that Ed Carson and Alexis do on Fridays, because it does a nice little wrap up for you so that when you go into the weekend, you kind of know, hey, here are some of the same things I need to be aware of as I'm doing my weekend screening, what earnings are coming up.

18:06Alissa Coram:So I'm cognizant of that when I see setups and maybe some things that I need to be aware of on the earning side still.

18:13Justin Nielsen:Yeah. Such a great tool for our investing audience out there. Drops every Friday morning during earnings season, gets you prepared for the week ahead. All right. Let's move on, Justin, and get your thoughts on EW, Edwards Life Sciences. We've been talking a lot about medical sector names, and this one is setting up in a cup with handle. Yeah.

18:38Alissa Coram:So let's take a step back. One of the ETFs that we could also look at is XLV, which is the healthcare sector, or XBI, which is the biomed biotech sector. Those took some hits recently and another pullback, although these are still holding up pretty well. You can't just necessarily throw in the towel because of one day or a few days of that action. As you're pointing out, the relative strength still very strong on these, especially in relation to the moving average lines, those webby moving average lines that we often will put on the relative strength line. So that's, I think, encouraging. And you still have, despite some weakness in individual names and maybe the ETFs overall, you still have a lot of these really interesting setups.

19:25Alissa Coram:So Edwards Life Sciences, it's in the medical products area. And this has been just getting support right there at the 50 day moving average line, got support there today, had a nice bounce close in the upper range. So, uh, this is something I'm watching very closely. If this can just cross this downtrend. Um, and I like exactly the line that you put there, you can either do it on from the 9629 left side of the handle. I mean, left side of the cup or the shorter 93 91. Um, both of those work for me. I think the handle one gets you in a little bit earlier. So that's where I set an alert just to be aware, okay, this might be moving through an area.

20:03Alissa Coram:And, um, yeah, again, it's, it's a, it's a stock with some, you know, really good, uh, uh, chops there in terms of it's, if you go to the monthly chart on this one, um, mine, mine's a little slow, but you can see this, this has had very nice runs. It hasn't done much lately. Relative strength line has been kind of in the dumps. Um, but, this has got a lot of innovation. So I'm just kind of curious to see if this is something that can get back above 100 and have another run. But for now, I'm watching the setup and just taking note.

20:41Justin Nielsen:Yeah, exactly. And that's what I was going to ask you was about that relative strength. It's basically been a market performer over the last couple of years. So would want to see it get back into that out performance mode. And it seems like if it can do that, it will be crossing that century mark of 100, which goes back to a key resistance level over the last couple of years. So we will be watching very closely for a potential breakout to see if it can gain a little momentum. Also looking at the weekly chart, that's where we can see the fundamentals a bit better. And it looks like growth is improving again.