Video and Report Headlines
- Breadth Thrust vs Composite Breadth Model
- Small-caps and Mid-caps Still Struggling
- SPY Breaks October High
- QQQ Continues to Lead
- Will Small-caps and Mid-caps Partake?
- Strongest ETFs: XLK, XLC, HACK, IGV, PPA, URA
- Northrop Grumman Returns to Breakout Zone
- Five Below Fails to Hold Gap
The next Chart Trader will be posted on Tuesday, November 21st.
The weight of the evidence for stocks is mixed. Large-caps and large-cap techs are holding up well, but small-caps and mid-caps remain under pressure. Large-caps account for the majority of the stock market when measuring by market cap. However, there are a lot more mid and small cap stocks than large caps. This means the majority of stocks are struggling.
We can also see this split in the indicators. The Composite Breadth Model remains negative with four inputs bearish and only one bullish. We did, however, see a Zweig Breadth Thrust for the S&P 1500 on November 3rd. As Zweig puts it, his breadth thrust is designed to spot market trends early. At this point, the breadth thrust and price thrust from early November are holding. A close below the lower line of the Keltner Channel would negate the Zweig Breadth Thrust. Also note that signals in October 2015 and November 2018 did not work out.
Small-caps and Mid-caps Still Struggling
SPY and QQQ continue to lead the rest of the market. The chart below shows SPY and QQQ breaking their October highs with the November surge. SPY surged above its rising 200-day SMA and QQQ never broke its rising 200-day SMA. QQQ is far and away the leader.
The average S&P 500 stock (RSP) and the average Nasdaq 100 stock (QQEW) are not fairing as well. The S&P 500 EW ETF (RSP) and Nasdaq 100 Equal-Weight ETF (QQEW) surged in November, but they did not break their October highs. QQEW is back above is 200-day SMA and in third place. RSP remains below its 200-day. The Russell 2000 ETF (IWM) is the weakest of the group because it is still below its blue support zone.
SPY Breaks October High
SPY hit a 52-week high in July and then declined into October. The difference between the 5 and 200-day SMAs exceeded +3% in early February (uptrend) and has yet to break below -3% (downtrend). Assuming a long-term uptrend, then the decline into October was a correction within the bigger uptrend. This decline retraced 50% of the Oct-Jul advance and 67% of the Mar-Jul advance. These retracements are normal for pullbacks within bigger uptrends. A falling channel formed and SPY broke out of this channel with the November surge.
This breakout is bullish until proven otherwise. SPY fell rather sharply on Thursday, but immediately rebounded on Friday with a big gain. This decline and sharp rebound established short-term support at 433. This is the first level to watch for signs that the breakout is failing. A close below 433 would reverse the short-term upswing.
QQQ Continues to Lead
QQQ hit a new high in July and then retraced around a third with a falling channel. Overall, the retracement amount and pattern are typical for corrections within a bigger uptrend. Thus, the breakout signals a continuation higher. There are clear swings within the channel and the current swing is up. The short green lines mark short-term support levels with current support set at 370. A strong breakout should hold and this is the first level to watch for signs of cold feet.
Will Small-caps and Mid-caps Partake?
This is the $1 million question. SPY and QQQ are performing well. Small-caps and mid-caps are struggling. The S&P MidCap 400 SPDR (MDY) and Russell 2000 ETF (IWM) surged with the market from October 30th to November 3rd, but then fell back the last six days. Here is the percentage change over the last six days: QQQ +2.6%, SPY +1.3%, MDY -1.7% and IWM -3%. SPY and QQQ continued higher, but small-caps and mid-caps got cold feet.
SPY and QQQ are above their 200-day SMAs, while MDY and IWM are below. The market is split (at best) until mid-caps and small-caps partake in the advance. The chart below shows MDY with a 7.3% surge and a pullback that retraced 50%. A falling flag of sorts formed and there were two inside days after the long black candlestick. These inside days show indecision that could for foreshadow a short-term reversal. A breakout at 448 would be bullish and I would then target a move to the 460-465 area.
The next chart shows IWM with an 8.5% surge and a 50-67% retracement. A possible flag is taking shape with resistance marked at 171. IWM also formed two inside days and a breakout would target a move towards the 180-182 area.
Chart Analysis, Setups and Trading Ideas
XLK Breaks nears Summer High
The Technology SPDR (XLK) is leading the market because it is within 2% of a 52-week high. Overall, the ETF hit a new high in July and then retraced around a third of the January-July advance with a falling channel. XLK broke out of this channel with a 12% surge in 11 days. Short-term, the ETF is overbought and ripe for a rest, which could involve a pullback or consolidation. The breakout zone in the low 170s marks first support should we see a pullback. XLK was featured on October 31st because it was holding up well.
Cyber Security ETF Extends Higher
The Cyber Security ETF (HACK) is also very close to a 52-week high and leading long-term. HACK broke out with a surge in May-June and then began to zigzag higher. The surges and pullbacks within the zigzag are rather large, but the overall trajectory is up with a rising channel of sorts. HACK is also short-term overbought after a big surge. Note that HACK was featured on October 31st as it tested support.
Software ETF Gets a Breakout
The Software ETF (IGV) surged some 11% in 11 days and broke out of a falling wedge in the process. IGV is also close to a 52-week high and leading the market. Overall, the falling wedge/triangle retraced around a third of the prior advance. This pattern is also typical for a correction within the bigger uptrend. The only negative is that IGV is short-term overbought after a big surge. I would watch the 350 area for support should we see a pullback.
Communication Services Shows Upside Leadership
The Communication Services SPDR (XLC) has yet to break its October high, but sports a pattern similar to QQQ and XLK. The falling channel retraced a third of the prior advance and this pattern is typical for a correction after a big advance. XLC surged to the October high with a big move the last 11 days and is less than 2% from a 52-week high.
Aerospace & Defense ETF Extends on Breakout
The Aerospace & Defense ETF (PPA) broke out of a falling wedge in early November and surged to its summer highs. PPA is less than 1% from a 52-week high and leading the market. Overall, PPA sports a choppy uptrend since December. The green dashed line marks the rising lows and the ETF tagged a 52-week high in July. Unrest in the Middle East triggered the October surge and the wedge was viewed as a correction after this surge (see the report on October 31st). PPA followed through on the breakout and is leading the market.
Uranium ETF Extends on Breakout
The Uranium ETF (URA) extended on its pennant breakout with a 3% gain so far this week. Overall, URA surged some 200% into October 2021 and retraced two thirds with a decline into July 2022. A big falling wedge formed and URA broke out with a surge this summer. The ETF then formed a pennant into October and broke out in late October. This breakout signals a continuation higher and I am marking support at 25.
Northrop Grumman Returns to Breakout Zone
Northrop Grumman (NOC) hits support-reversal zone. The weekly chart on the left shows NOC surging 61% in 2022 and retracing 2/3 of this move with a decline to the 420 area. The ETF firmed just above the breakout zone (blue shading) and surged in early October. The right chart shows daily candlesticks to focus on this surge. NOC surged 20% and then returned to the breakout zone in the 460 area (blue shading). This breakout zone turns into support. Also notice that NOC retraced around 50% of the 20% advance. Taken together, the stock is in a potential support-reversal zone. The blue lines are parallel and this falling channel defines the downswing. A breakout at 470 would be bullish.
Five Below Fails to Hold Gap
Five Below (FIVE) reverses after retracing half of prior decline. FIVE is in a long-term downtrend with a lower high from April to August and a 52-week low in September. The stock was extremely oversold in late September and rebounded with an advance to the 180 area. This advance retraced around half of the decline and the stock hit resistance at 180 twice in the last two months. Short-term, FIVE gapped up on November 2nd, but failed to hold this gap after a sharp decline on Monday. It looks like FIVE is reversing its upswing and the stock is poised to continued its long-term downtrend. A close above 177 would call for a re-evaluation of this bearish outlook.
