Video and Report Headlines
- Measured Move Target for SPY
- Fundamentals Show A Perfect Storm
- QQQ Reverses Upswing
- Russell 2000 ETF Remains the Weakest
- Gold Goes for Another Breakout
- US Oil Fund Consolidates after Breakout
- Oil & Gas Equipment & Services ETF Hits Reversal Zone
- Natural Gas Futures versus the ETN
- Nike Hits Resistance Zone
The next Chart Trader will be posted on Tuesday, October 31st.
We are taking a step back today with some weekly charts for a long-term perspective. It is not pretty because we are in a bear market and risk in stocks is well above average. SPY and QQQ recently reversed their upswings. This means the immediate and long-term trends are aligned (both down). I will show some downside targets using the Measured Move technique. Attention then turns to stock alternatives (gold, oil, natty) and a stock hitting resistance after an oversold bounce.
Measured Move Target for SPY
The first chart shows SPY with a Measured Move target to the 340 area. Before going any further, take targets with a bucket of salt and a shot of tequila. Targets represent possibilities based on the active chart signal. This means targets are valid as long as the active chart signal remains valid. SPY is in a long-term downtrend with a rising wedge break as the active signal. This means the path of least resistance is down and downside targets are the order of the day.
On the SPY chart below, the ETF advanced with a rising wedge and broke support with a sharp decline last week. SPY also closed below its 40-week SMA last week. This rising wedge break signals a continuation of the prior decline, which was -25% from January to October 2022. A Measure Move is a technique to apply the length of the first move to the second move for a target. A 25% decline from the July high would target a move to the 340 area
The red dashed lines on the chart above mark a possible falling channel. A lower high formed from January to July for the upper line. The lower line extends from the April-October lows and hits the 340 area next year. Again, take this target with a grain of salt. A decline to the 300-350 area would also retrace 50-67 percent of the prior 120% advance. This massive advance puts the decline into perspective and makes it look rather normal. In other words, one would expect a big correction after a 120% advance.
A Perfect Storm
I am not one to talk fundamentals because I think the markets are forward looking. The price charts will reflect what is coming. In any case, one could certainly make the case for the perfect storm.
- The 10-yr Treasury Yield is near 5%
- The 30 year mortgage rate is at a 20+ year high
- Inflation remains an issue (rising cost of living)
- US restrictions on tech exports to China
- The war in Ukraine continues
- Tensions are rising in the Middle East (energy prices)
This is all coming together and there is talk of the R word (recession). These events could create the perfect storm that leads to a dislocation in the markets. Dislocation is another word for a downside overshoot that might set up an opportunity. A decline to the 340 area in SPY would certain lay the groundwork for such a dislocation, and a possible opportunity.
QQQ Reverses Upswing
QQQ is holding up better than SPY over the last few months, but it too reversed its upswing and the bigger trend is down. The chart shows QQQ with a rising channel from January to July and a channel break last week. This reverses the upswing and I can now draw the red-dashed trendline from the January 2022 high. A big falling channel could be forming with the lower line extending to the 250 area. This area also marks a 66.7% retracement of the prior (147%) advance.
Russell 2000 ETF Remains the Weakest
The next chart shows the Russell 2000 ETF (IWM) with a Measured Move target to the 135 area. IWM led the market lower with a breakdown in January 2022 and 32% decline. While SPY and QQQ moved sharply higher in 2023, IWM remained stuck in a contracting range. A triangle formed and this is a consolidation within a bigger downtrend. The triangle break signals a continuation lower and targets a move to the 135 area.
Chart Analysis, Setups and Trading Ideas
Gold Goes for Another Breakout
The Gold SPDR (GLD) chart highlights the fractal nature of technical analysis. We can see similar patterns on different timeframes. First, GLD surged 74% and formed a large falling channel from August 2020 to March 2023. This channel retraced 50% of the prior advance. The 74% advance was two steps forward and the falling channel was one step backward (correction). GLD broke out of the channel in mid March.
The second pattern is also a falling channel that retraced around 50% of the prior (26%) advance. GLD surged over the last three weeks and broke out of this channel. This breakout signals a continuation of the 26% advance and targets a move above 200. A move below 175 would negate the break and call for a re-evaluation.
US Oil Fund Consolidates after Breakout
The US Oil Fund (USO) is in an uptrend and a pennant breakout would target a move to the $100 area. First, USO formed a falling wedge that retraced 50% of the prior advance. This was a correction after the big advance and the breakout signals a continuation higher. USO stalled after the breakout with a pennant forming the last four weeks. This is a short-term bullish continuation pattern and a breakout would target a move to the $100 area. A close below 73 would call for a re-evaluation.
Oil & Gas Equipment & Services ETF Hits Reversal Zone
The Oil & Gas Equipment & Services ETF (XES) will likely follow oil. Tensions are running high in the Middle East so expect some volatility. The chart shows XES surging to a new high in mid September and then falling to the 87 area in early October. XES surged along with oil the week of October 9th and then fell back the last five days. This decline retraced 66.7% of the October surge and returned to the gap zone. This puts XES in a potential support/reversal zone. Watch for a short-term reversal and upturn here. A higher low in October would then make a triangle possible and a break above the October high would open the door to new highs.
Natural Gas Futures versus the ETF
The next chart shows the NYMEX February 2024 Natural Gas Futures (NGG2024) from TradingView. This is one of the active months going forward and a good basis for timing the Natural Gas ETF (UNG). Note that UNG is benchmarked to the near month futures contract and these contracts are rolled over two weeks before expiration. The chart shows February NatGas falling into April and then consolidating into August. NatGas then broke down in early September, but shot higher in early October, only to fall back to its lows. There is a clear resistance zone in the 3.9 area and a breakout here is needed to turn bullish.
The next chart shows UNG with a rounding bottom in the works. The pattern is not confirmed because UNG has yet to break resistance in the 8 area. Short-term, UNG broke out with a surge in early October, but fell back over the last two weeks (just as the futures chart above). UNG formed a small falling wedge over the last two weeks and broke out over the last two days. This is the first sign of strength and we could see another run at resistance. A close below 6.50 would negate this setup.
Nike Hits Resistance Zone
The next chart shows Nike (NKE) hitting resistance from broken support in the 105 area (blue shading). First and foremost, the stock is in a long-term downtrend. NKE became oversold in late September and surged after an earnings beat (green E). The stock followed through in October and outperformed the market this month. Nevertheless, I think this is a counter-trend bounce within a bigger downtrend and resistance is nigh. This week’s low marks first support at 102 and a break here would reverse the short-term upswing. Note that the pink E at the bottom right shows the date of the next earnings report.
