Video and Report Headlines
- A Large-cap World with Pockets of Weakness
- Seasonal Pattern for S&P 500
- %Above 20-day SMA Triggers Bearish
- Top Stock Performance is Mixed in 2024
- SPY and QQQ Hold Up
- Small-caps Lead the Way Lower
- Hot and Cold Streaks
- Adobe Bounces off Support-Reversal Zone
- Live Nation Forms Bullish Continuation Pattern
- Edwards Life Sciences Corrects after Breakout
- AMAT, EA and TTWO Go for Breakouts
The next Chart Trader will be posted on Tuesday morning, January 23th.
A Large-cap World with Pockets of Weakness
2024 marks a new year with the same leaders. Large-caps are still stronger than mid-caps and small-caps. The Technology and Communication Services sectors are still the leading sectors. There is, however, a new leading sector this year: Healthcare. The PerfChart below shows performance for SPY, QQQ, MDY, IWM and eight of the eleven sector SPDRs. SPY and QQQ are down a fraction this year. Small-caps are leading lower with IWM down over 5%.
Among the sectors, the Healthcare SPDR (XLV) sports the largest gain. The Consumer Staples SPDR (+.44%) and Communication Services SPDR (+.39%) are the second strongest sectors. XLP is not shown. The Technology SPDR (XLK) shows relative strength because it is down less than SPY. Despite leadership from Technology, it is disconcerting to see notable pockets of weakness in the Consumer Discretionary SPDR (XLY), Industrials SPDR (XLI) and Materials SPDR (XLB).
Seasonal Pattern for S&P 500
Seasonally speaking, the S&P 500 shows a historical tendency to trade flat from January to mid March (lower left of chart). The red shading highlights two weak periods: the second half of January and mid February to mid March. We cannot use these seasonal patterns for exact timing, but there is a clear tendency for choppy trading the first two and a half months of the year.
%Above 20-day SMA Triggers
The next chart shows SPY with an overbought/oversold indicator based on five short-term breadth indicators (middle window). It becomes overbought at +3 or higher and oversold at -3 or lower. Once the indicator becomes overbought (red OB), a move below 30% in SPX %Above 20-day SMA signals a downturn (red arrows). The red OBs on the chart shows when it becomes overbought and the red arrows show when %Above 20-day SMA follows with a cross below 30%.
The SPX OBOS Indicator hit +4 on December 1st and SPX %Above 20-day SMA was above 70% at the time. The indicator exceeded +3 four more times in December as SPX %Above 20-day SMA held strong (>70%). %Above 20-day SMA deteriorated in January and moved below 30% on Wednesday. Signals in April 2022 and August 2023 led to significant pullbacks or declines. SPY bottomed soon after the signal in mid December 2022.
Top Stock Performance is Mixed in 2024
SPY and QQQ are holding up because they are dominated by large-caps. This means price action in SPY and QQQ can diverge from breadth indicators. Weakness in breadth is reflected in broad ETFs that are equally weighted, such as the S&P 500 EW ETF (RSP), Russell 2000 ETF (IWM), S&P MidCap 400 SPDR (MDY) and S&P SmallCap 600 SPDR (IJR).
The top ten stocks in SPY account for 32.5% of the ETF (SPY, MSFT, AAPL, AMZN, NVDA, GOOGL, META, BRK/B, TSLA, LLY, AVGO). The PerfChart below shows a mixed performance for the top ten with six up and four down. Tesla (TSLA) is by far the weakest with Apple (AAPL) the second weakest. Microsoft (MSFT), Nvidia (NVDA) and Eli Lilly (LLY) are leading on the upside.
The top ten stocks in QQQ account for 48% of the ETF (QQQ, MSFT, AAPL, GOOGL, AMZN, NVDA, AVGO, META, TSLA, COST, ADBE). Again, performance in 2024 is mixed with five up and five down. MSFT, NVDA, META and Costco (COST) are leading on the upside. Apple and Tesla are leading on the downside.
SPY and QQQ Hold UP
The chart below shows SPY tagging a new intraday high last week and falling a whopping .92% the last two days (less than 1%). This is hardly a meaningful pullback and SPY is by no means short-term oversold. As such, I do not see a setup on this chart. The long-term and short-term trends are still up for SPY. At this point, I will mark first support using broken resistance and the 33% retracement (blue shading).
The next chart shows QQQ falling .57% the last two days. QQQ is holding up well and remains in a short-term uptrend. The sharp pullback the first week of January created a short-term oversold condition and mean-reversion setup. The current two day pullback is not really a pullback and I do not see a setup. Broken resistance and the 33-50% retracement zone mark first support (blue shading).
Small-caps Lead the Way Lower
I will show a chart for the S&P SmallCap 600 SPDR (IJR), but I am not interested in small-caps. In other words, I do not trade small-cap ETFs because they are not worth the added risk. In contrast to QQQ and SPY, IJR fell around 2% the last two days and is down around 7% the last 13 trading days. IJR is short-term oversold and a falling wedge could be forming. So, yes, there is a setup brewing here. A surge and close above 103 would forge some sort of short-term reversal. A close above 105 would break wedge resistance.
Chart Analysis, Setups and Trading Ideas
Hot and Cold Streaks
After a good run in November-December, the January setups and signals are more mixed. Some winners in November-December include CSCO, MRK, LLY, AMGN, REGN, HACK, IGV, GPN and PANW. The charts below show some of the recent setups with breakouts that failed (TXT, KBWB, XLE), breakouts that never materialized (BLL, CMI, GEHC, XME) and recent breakouts that are looking shaky (LMT, NOC). Trading is like a basketball season. There are hot streaks, cold streaks and periods of mixed performance. To win at the end of the season, profits during hot streaks need to be greater than losses during cold streaks.
Adobe Bounces off Support-Reversal Zone
ADBE was one of the leaders in 2023 with a 77% gain. The stock is flat in 2024, which means it shows a little relative strength. On the price chart, ADBE surged 25% into yearend and then returned to the breakout zone. The falling wedge decline into early January also retraced 50-67 percent. This means ADBE hit a support-reversal zone around 560. The stock bounced the last seven days and broke the upper line of the falling wedge. This is the first sign that the bigger uptrend is resuming. A close below 580 would call for a re-evaluation.
Live Nation Forms Bullish Continuation Pattern
LYV turned the corner with a wedge breakout in November and then worked its way higher into late December. The price chart sports higher highs and higher lows over the last two months (uptrend). After a 16% surge in December, the stock fell back the last four weeks and formed a pennant of sorts. This is a short-term continuation pattern that gets its trading bias from the prior move, which was up. I am marking resistance at 92 and a breakout here would be short-term bullish. I would then target a move to the low 100s and set re-evaluation support at 89.
Edwards Life Sciences Corrects after Breakout
EW is part of the Healthcare sector, which is the strongest sector here in 2024. The stock fell throughout 2022 and hit a 52-week low after a sharp decline from July to October. EW may be turning the corner after a 26% surge and breakout in mid December. After becoming overbought in mid December, the stock corrected with a falling flag. This flag worked off these overbought conditions and could be the pause that refreshes. Last week’s high marks resistance and a breakout here would be bullish. I would then mark re-evaluation support at 73 and trail this stop should prices rise after the breakout.
AMAT, EA and TTWO Go for Breakouts
Applied Materials (AMAT) was covered on January 11th. Electronic Arts (EA) and Take Two (TTWO) were covered on January 9th. AMAT is part of the Technology sectors and Semiconductor Group. EA and TTWO are part of the Communication Services sector and Video Gaming group. The first chart shows AMAT firming in a support-reversal zone and breaking short-term resistance on Tuesday. Initial re-evaluation support is set at 148.
The next chart shows EA with a breakout on January 9th and a pullback the last two days. The January lows mark initial re-evaluation support at 135. EA reports earnings on January 30th.
The next chart shows TTWO with a pennant breakout on January 11th and a small decline on Wednesday. This breakout is bullish with initial re-evaluation support marked at 157.
