Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
The consumer discretionary sector has rallied very sharply during this rally, but the group is looking extended against a divergent background. John Hughes is highlighting this group in this weeks sector report, but I wanted to show a chart of the ETF against the divergent internal and price momentum indicators. See John's report tomorrow for an in-depth look at the group. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
We're seeing an aggressive opportunity in the oil services sector right here. This energy sector has made some significant improvements in the last month. The broader group has broken out of a large bullish rectangle to the upside and breadth for the sector has broken out to new highs. This is bullish for the broader group.
The oil services sub-sector is the most volatile component of the energy sector. The oil service stocks formed very bearish looking distribution patterns over the last year. Traders get defensive on this sector as they anticipated the end of the energy bull market and a breakdown in crude oil. What we have seen instead is a resurgence in these names that is starting to nullify the bearish chart formations in the sector. When a bearish pattern fails it can be a very bullish situation as traders positioned for a decline on the short side are forced to cover and take the stocks higher. This is an aggressive trade right here, but it's an interesting opportunity.
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
We talked about the bullish setup in the energy stocks in our daily report sometime last week. In spite of a rash of bearish distributive patterns forming in the sector over the last several months, especially in the service sector, we did see breadth hold on and approach new highs. We stated that this group may end up looking a lot like the utility sector last year if crude oil prices move out turn up and act as a bullish catalyst.
Here are several names in the sector that look interesting. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
We just wanted to show the best performing sectors on an equal weight basis over the last 200-day period. No.1 and No.2 are insurance and gaming! Huh? We would urge traders here to drop whatever sector biases you have and take a fresh look at the market from a sector standpoint. Having the correct sector exposure is key here to staying on the right side of this market. As we can see in the chart below the top third of the sectors have made all the returns over the last 200-day period. If you've been in the wrong sectors it's been tough. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
If your not feeling the full benefit of this rally over the last month it probably has something to do with your sector selection. The fact is that I would be surprised if you were in the best performing sectors over the last 40-day period. The best performing group was biotechnology, followed by insurance, wireless, specialty retail, telecom, internet, and industrial materials. The only sector out of this group I've heard real interest in has been insurance. The rest of these sectors, especially biotech, wireless, telecom and internet have been treated as interesting anomalies at best. I hear more talk from the bulls and the bear on semiconductors and energy then any other sectors.The semiconductor sector has been flat since September and the energy sector has been net flat since February. This is a good example of how our biases have us looking in the wrong place sometimes. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
Last night we talked about the biotechnology sector in our daily report. Here are a few examples of some interesting charts in the sector. The group is looking extended and may be losing it's upside momentum, but the long-term bullish structure of the group is intact and a pullback in the sector would make an interesting entry point on the long side. We're thinking that the Democratic takeover of Congress could lead to some trepidation about the health care stocks. That may provide an opening into the biotechnology group. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
The consumer discretionary sector has had an extraordinary run as the group went from being every hedge fund managers favorite short with crude oil moving out over $70 to everyone's "must own" group as crude collapsed off of the highs. Sentiment in this group has made a 180 degree turn based on oil, but there is more to this. At the point of maximum pessimism the group never really broke down. It simply moved to the lower end of a large consolidation. Once sentiment reversed on the sector and the market rallied we saw the group break out of this consolidation and rally sharply. The technically significant action came on the long side of the trade. This is important to note.
As weak retail numbers came in this week the bears are out in full force bashing the group. They may be right that the group is extended to the upside, but from our point of view the group is in an excellent long-term technical position.The sector is overbought in the intermediate-term time-frame, but there is a significant improvement in the number of long-term uptrends in the group. We would look for a consolidation back to support in this sector to enter on the long side. 
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
I get the sense that most hedge fund managers are looking at the rallies in the tech sector as just another setup for a short entry. At this point in the game this is simply a reflex from hedge fund managers, kind of like scratching your nose or blinking. They don't even know why their doing it anymore. It's was such a profitable trade during the bear market that these guys simple want to keep going back to the well. You know what happens to you when you go back to the well one to many times. You get run over. This is what happened to the bears in this group at the June-July lows this year.
Since then the tech stocks have had a spectacular run and the NASDAQ has broken out to new highs. We believe this move is real. We noted back in July that we generated a long-term oversold reading in the sector. This means that almost every stock in the group was below its 40 and 200-day moving average. That's unsustainable selling pressure. We also noted that when we get signals like that the NASDAQ tends to just run. This is exactly what we have seen from the group. The index put in a "V" bottom and has now broken out to new highs. The long-term nature of the signal suggests to us that the group is not done. There is most likely a longer-term trend taking effect here and the group should be watched closely for continued upside pressure.
Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com
It's interesting to watch the life cycle of a sector. The media sector has gone from the most hated group of stocks in the market over the last 5 years to one of the favorite recently. Many names in this sector have based and turned up into strong uptrends. The recent large-cap rally has broken many of these names out over resistance.
Here are a couple of interesting charts in the sector:
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