Video and Report Headlines
Broad Market Analysis
- More Stocks Below their 200-day SMAs
- New Lows Exceed New Highs
- SPY Gets Oversold Bounce
- %Above 20-day Crosses above 20%
- Equal-weights and Small-caps Lagging
- QQQ Leads Bounce with Short-term Breakout
Chart Analysis, Setups and Trading Ideas
- SPY versus IGV
- IGV Reverses Downswing within Triangle
- Communication Services SPDR Surges off Support
- Cyber Security ETF Recovers after Hard Throwback
- DraftKings Forms Triangle after New High
- Cisco Returns to Breakout Zone
- Mastercard Firms at Key Retracement
The next Chart Trader will be posted on Thursday, October 12th.
The weight of the evidence remains bearish for stocks. First, long-term breadth indicators are net bearish. Second, the S&P 500 EW ETF, Russell 2000 ETF and S&P SmallCap 600 are below their 200-day SMAs. These ETFs also fell back to their spring lows and are down year-to-date. SPY and QQQ are above their 200-day SMAs and up year-to-date. Strength in SPY stems from strength in large-caps and large-cap tech stocks. These stocks represent the minority. Small-caps and mid-caps are the majority. Thus, there are some pockets of strength, but the pockets of weakness are bigger. Short-term, stocks are in the midst of an oversold bounce. This bounce, however, is considered a counter-trend bounce within a bigger downtrend or a bearish backdrop.
More Stocks Below their 200-day SMAs
The weight of the evidence remains bearish for stocks. The chart below shows the percentage of stocks above the 200-day SMA for the S&P 500, Nasdaq 100, S&P MidCap 400 and S&P SmallCap 600. NDX %Above 200-day is the only one holding up and showing more uptrends (61.39%) than downtrends (green shading). The other three dipped below 40% over the last few weeks (red shading). This means fewer than 40% of S&P 1500 stocks are above their 200-day SMAs. Put another way, over 60% of component stocks are below their 200-day SMAs (in long-term downtrends). This indicator is net bearish.
New Lows Exceed New Highs
New lows expanded over the last few weeks. The next chart shows High-Low Percent for the same four indexes. High-Low Percent is the percentage of new highs less the percentage of new lows. The bars are green when above +10% and red when below -10%. These are the levels to watch for long-term signals. Again, NDX High-Low Percent is the only one holding up. It exceeded +10% on March 31st and surpassed +25% in mid July. New lows outpaced new highs since September, but the indicator has yet to breech the -10% level. SPX and MID High-Low Percent dipped below -10% in October as new lows expanded. SML High-Low Percent crossed below -10% in mid March and never fully recovered. Overall, there are more new lows than new highs in the market and this is net bearish.
SPY Gets Oversold Bounce
SPY came within a whisker of its rising 200-day SMA after a 1.3% decline last week Tuesday and bounced 2.54% the last four days. Three pieces came together to mark support in the 420 area. These include the rising 200-day, a 50% retracement of the March-July advance and broken resistance from the February-April highs. The April-May lows and deeper retracements mark the lower end of the support zone around 405. This bounce is considered a counter-trend move because the trend since July is down and the weight of the evidence remains bearish. As such, this bounce is expected to fail or stall out below the September highs.
%Above 20-day Crosses above 20%
The next chart shows SPY with the Short-term Breadth Composite indicator. As the chart shows, this indicator aggregates signals in five breadth indicators. It is oversold when at -3 or lower (green bars) and overbought when at +3 or higher (red bars). The red arrows show when SPX %Above 20-day SMA crosses below 60% for a subsequent bearish signal. The green arrows show when SPX %Above 20-day SMA crosses above 20% for a subsequent bullish signal.
SPX %Above 20-day SMA crossed above 20% on Monday. This confirms that an oversold bounce is underway for SPY. As far as trading strategies are concerned, chartists can trail a stop or set a profit target for an exit. I am working under the assumption that this is a bear market bounce. The first target zone is around 440 (broken support).
QQQ Leads Bounce with Break above Late September High
QQQ remains in a downtrend since July with a falling wedge taking shape. QQQ broke below the August low (green dashed line) with the September decline, but this break did not last long. QQQ also broke above the late September high (red dotted line) and is up 2.3% month-to-date. The swing within the wedge is now up. The early September high marks resistance and a breakout here is needed to fully reverse the downtrend. As long as this bigger downtrend remains, the current bounce is considered a counter-trend bounce that is expected to fail below resistance. Longer-term, the downside target remains in the 330 area.
SPY versus IGV
There are two levels we can use to compare performance: the August low and the late September high. Stocks and ETFs that did not break their August lows held up better during the September decline. Stocks rebounded over the last four days and those that broke their late September highs are showing relative strength. The chart below shows SPY in the top window, IGV in the middle and the IGV:SPY ratio in the lower window. SPY broke its August low (green dashed line) and is trading near its late September high after the two day bounce. IGV held above its August low (relative strength) and broke the early September high on Friday (a day earlier). IGV held up better on the downside and led on the rebound.
The table below shows ETFs that are up over the last six days and over the last 35 days. ETFs showing gains over the last six days are above their 29-September highs. ETFs that are up over the last 35 days are trading above their August lows. For the most part. These are the leaders over the last two months.
Chart Analysis, Setups and Trading Ideas
IGV Reverses Downswing within Triangle
The Software ETF (IGV) is in a long-term uptrend with a 52-week high in July. After hitting this high, the ETF moved into a trading range with a triangle taking shape. Triangles are typically continuation patterns and a breakout at 365 would confirm the pattern. Short-term, traders can watch the swings within the pattern. The most recent swing was down from mid September to early October. IGV then firmed in the 335 area and broke short-term resistance with a big move on Friday. Re-evaluation support is set at 336.
Communication Services SPDR Surges off Support
The Communication Services SPDR (XLC) has the same setup. Note that IGV, XLC and HACK were featured in the report/video on September 28th (27-Sept close). XLC broke short-term resistance on September 28th, fell back the next three days and surged the last four days. Re-evaluation support is set at 65. As far as managing the trade is concerned, chartists can consider closing half the trade after this initial surge and trailing a stop for the rest. The idea is to prevent a loss.
Cyber Security ETF Recovers after Hard Throwback
Cyber Security ETF (HACK) broke out with a close above short-term resistance on October 2nd, fell back after the breakout and then surged the last two days. The post breakout throwback was quite sharp, but HACK did not close below the re-evaluation level at 50.6. Overall, HACK remains a leader with a new high in early September and a higher low in late September. It is also within spitting distance of its 52-week high.
Should we use closing or intraday prices? Should we watch the market during the way to wait until after the close? These are questions we must all ask ourselves. HACK closed above resistance on October 2nd for a breakout. The ETF then fell back and closed below 51. It then dipped below the late September close during the day on October 5th and 6th. This dip would have triggered intraday stops, but close-only stops would have held. Note that the close on September 26th was 50.62 (green line). I prefer closing prices for entries and exits. This means signals trigger with closing prices and the entry/exit is the next day. I also make an effort to NOT watch the market during the trading day. Personally, I do better by trading the patterns and checking trades when the market is closed.
DraftKings Forms Triangle after New High
The next chart shows DraftKings (DKNG) with a triangle after a new high. The logic here is the same as with IGV and XLC above. The latest swing within the triangle is down with resistance marked at 29.50. DKNG is in the process of breaking out and reversing this downswing. I am using the October 3rd close to mark the re-evaluation level at 27.80. A close below this level would negate the breakout.
Cisco Returns to Breakout Zone
The next chart shows Cisco (CSCO) leading the market with a breakout in July and new highs into September 1st. The stock fell back with the market in the first half of September and then fell 3.9% after announcing its acquisition of Splunk (SPLK). CSCO firmed after this plunge and found support near broken resistance and the 50% retracement. The stock broke the angled trendline extending down from the September high. I am not a big fan of angled trendlines, but this one was touched three times. Further strength above the late September high would fully reverse the downswing.
Mastercard Firms at Key Retracement
The next chart shows Mastercard (MA) in a long-term uptrend with a 52-week high in mid September. The stock fell back with the rest of the market in the second half of September and firmed in a support-reversal zone. First, the blue shading marks support from broken resistance and the August lows. Second, the decline also retraced half of the May-September advance. I am marking downswing resistance at 400 and a close above this level would be bullish. I would then mark re-evaluation support at 390.
