Video and Report Headlines
- SPY Gets Oversold Bounce
- QQQ Bounces off Lower Line of Falling Channel
- Six Leading ETFs/Groups
- Uranium ETF Gets Another Breakout
- Natural Gas ETF Hits Gap-Reversal Zone
- EQT Forms Bull Flag after Surge
- Zscaler Pulls Back within Zigzag Advance
- L3Harris Technology Challenges Flag Resistance
The next Chart Trader will be posted on Tuesday, November 7th.
SPY and QQQ are getting oversold bounces within larger downtrends. Short-term, a number of factors came together for this bounce. First, the turn-of-the-month shows a bullish bias, especially the October-November turn. Second, monthly seasonal patterns are bullish in November. These seasonal patterns were discussed on Tuesday. Third, SPY and QQQ were short-term oversold last week. Stocks bounced this week with QQQ, XLK and a few tech-related ETFs leading the charge. It is hard to say how long or how far this bounce will extend because we should not underestimate the bulls. Even so, the weight of the evidence remains bearish for stocks and this is still considered a counter-trend bounce.
The turn-of-the-month covers the last four trading days of one month and the first four days of the next month. The current period runs from October 27th to November 4th. Since January 2000, this eight day period was up 63.2% of the time with an average gain of 2%. Note that the turn from October to November is even stronger. The blue shading highlights performance for this period. Over the last 23 years, this eight day period finished positive 82% of the time.
SPY Gets Oversold Bounce
SPY hit two key retracements and the lower end of its support zone in late October and bounced the last three days. This bounce is deemed a short-term oversold bounce within a bigger downtrend. At the very least, the red dashed trendlines show a falling channel since August. These lines mark a clear downtrend over the last few months. The mid October high marks channel resistance and a break here is needed to reverse the downtrend.
Note that SPY broke its 200-day SMA with the October decline and is now challenging the underside of this key moving average. The area around the 200-day SMA is often a real battle zone. There were over 10 crosses from late November 2022 to late March 2023. I would not get too excited with a close above the 200-day at this point because the weight of the evidence is bearish for stocks. As such, I would expect this oversold bounce to fizzle, possibly in the 430 area.
QQQ Bounces off Lower Line of Falling Channel
QQQ is also in a downtrend and also getting an oversold bounce. The ETF fell below the lower line of a falling channel and the Momentum Composite dipped below -3 five days ago. This created an oversold condition, not to mention the 7.5% decline in 11 days. Given the overall bearish environment, I would expect QQQ to hit short-term resistance in the 370 area or below. I am marking resistance at 374 and a break here would reverse the falling channel.
Six Leading ETFs/Groups
The next chart shows six leading ETFs, but not in any particular order. These ETFs represent insurance (KIE), defense (PPA), energy (XES, AMLP), communication services (XLC) and cyber security (CIBR). They are all above their rising 200-day SMAs and in long-term uptrends. They are also holding up better than the broader market over the last three months. Note that I covered USO, XES and SLB on Tuesday (here).
Chart Analysis, Setups and Trading Ideas
Uranium ETF Gets Another Breakout
I covered the Uranium ETF (URA) on October 24th as it firmed at the 33% retracement on the daily chart. The chart below shows weekly candlesticks since January 2020. URA formed a big falling wedge that retraced around two thirds of the prior advance. It also found support in the 18 area from July 2021 to March 2023 (green shading). The wedge breakout in September 2023 signaled the start of a long-term uptrend. URA then formed a pennant into October and is breaking out of this pattern with a long white candlestick. This is a volatile ETF that needs some wiggle room so I will mark re-evaluation support at 24.
Natural Gas ETF Hits Gap-Reversal Zone
The Natural Gas ETF (FCG) is also a leading ETF because it tagged a 52-week high in mid October and is in a long-term uptrend. Short-term, the ETF surged some 15% and then retraced around 50% of this surge. FCG is also trading near the top of a the gap zone (blue shading). The gap zone and 50-67 percent retracement zone mark a potential reversal area. This is based on the normal ebb-and-flow of an advance. Think two steps forward and one step backward. FCG firmed the last three days and a breakout at 26.3 would reverse the short-term slide.
EQT Forms Bull Flag after Surge
EQT Corp (EQT) is in an uptrend since the big breakout in May 2023. The ETF surged some 60% and then retraced a third with the dip to the 39 area. EQT then surged back to its August high in October and fell back with a falling flag the last few weeks. This flag is a short correction after the 17% surge. Also note that the decline retraced two thirds of the 17% surge and returned to the breakout zone. A breakout at 43.3 would reverse the flag’s fall and signal a continuation higher.
Zscaler Pulls Back within Zigzag Advance
The chart below shows Zscaler (ZS) with a big breakout in early June and zigzag advance since August. This zigzag features higher highs and higher lows. Most recently, ZS fell back in late October with a 10% decline in eight days. Most of the momentum oscillators I checked did not become oversold though. For example, RSI(14) did not dip below 30 and the Momentum Composite did not even turn negative. If I wanted, I am sure I could find and indicator and setting that would show oversold. The point here is that we do not always need an indicator to recognize a short-term oversold condition. ZS is short-term oversold after this pullback and the long-term trend is up. A pullback within an uptrend is an opportunity. ZS turned up the last three days and is showing signs of a short-term breakout.
L3Harris Technology Challenges Flag Resistance
I featured LHX on October 29th with a bullish pennant, but it did not break out. The stock fell back and the pennant turned into a flag. Perhaps my pennant lines were too tight. In any case, I view this falling flag as a bullish continuation pattern. It represents a pullback after the early October surge. This flag also retraced around half of the 13% surge. Short-term, LHX surged after earnings and broke the flag line. The ETF is just short of breaking its mid November high, but I am expecting a breakout here, which would signal a continuation of the October advance. I would then target a move to the low 190s.
