Video and Report Headlines
- SPY Pulls Back into Keltner Channel
- Oversold Bounce has yet to Trigger Bullish Signal
- ST Breakouts and RSI Resistance for SPY and QQQ
- Home Construction ETF, Lennar and DR Horton
- Cybersecurity ETF and Crowdstrike
- Cloud Computing ETF Firms within Consolidation
- Semiconductor ETF Breaks Out
- Software ETF Challenges Short-term Resistance
The next Chart Trader will be posted on Thursday morning, May 9th.
SPY and QQQ are at their moment of truth for the current bounce. Stocks surged the last three days with SPY gaining 3.24% and QQQ advancing 4.44%. The current bounce started after oversold conditions in mid April. Over the last 11 days (since the mid April lows), SPY is up 4.32% and QQQ is up 6.17%. These are nice gains, but I have yet to see breakouts in the short-term breadth indicators and RSI has yet to clear 60. Thus, I still consider these dead-cat bounces, similar to late August. I would be proven wrong if we see breakouts in the short-term breadth indicators.
SPY Corrects into Keltner Channel
The chart below shows SPY as a 5-day SMA (blue line) and the Keltner Channel (65,2,65). I chose these settings because it ensures that SPY is trading in the channel after a Zweig Breadth Thrust (ZBT1500), which triggered in early November (green arrow). This ZBT1500 signal remains bullish until the 5-day SMA crosses the lower line of the Keltner Channel. For now, the 5-day SMA is still in the Keltner Channel and this is deemed a pullback or correction within a bigger uptrend.
The bottom window shows the 5-day SMA of the Composite Breadth Model at +1. It fell from +5 to +1 because the S&P 500 and S&P 1500 Thrust Models triggered bearish in mid April. This is testament to the strong selling pressure seen in a short time period. The S&P 500 and S&P 1500 Trend Models remain bullish and the SPX 5-day SMA is above the 200-day SMA. Thus, three of the five inputs are bullish and we remain in a bull market.
Links: Zweig Breadth Thrust and Composite Breadth Model
Oversold Bounce has yet to Trigger Bullish Signal
The next chart shows SPY with four short-term oscillators and a long-term trend indicator (see explanation below). SPX ObOs10 became oversold with dips to -7 and -8 from April 15th to 18th (green bars in first indicator window). SPX %Above 20-day SMA also dipped below 10% to become oversold (fourth indicator window). These oversold conditions foreshadowed the bounce in late April, but this was not enough to signal an end to the correction. I want to see an upside catalyst and/or a breadth expansion, such as SPX 4wk High-Low% exceeding +30%, SPX %Above 50-day exceeding 60% and SPX %Above 20 day exceeding 70%. Thus, no signal yet.
The next chart shows QQQ with the same indicators. NDX ObOs10 (first indicator) became oversold on April 18th and 19th (-7 and -10). NDX %Above 50-day SMA and NDX %Above 20-day SMA also became oversold with dips below 20% and 10%. These oversold conditions foreshadowed the bounce in late April. However, we have yet to see a bullish breadth signal, such as NDX 4wk High-Low% crossing above +30%, NDX %Above 50-day crossing above 60% or NDX %Above 20-day crossing above 70%.
About the Indicators: The charts above feature a long-term trend indicator in the bottom window and four short-term indicators to identify short-term bullish setups and signals. I am using the percentage difference between the 5 and 200 day SMAs for the long-term trend. A break above +3% is bullish and stays bullish until a break below -3%. The red shading marks the long-term downtrend in 2022. The first indicator window shows SPX/NDX ObOs10, which aggregates overbought and oversold signals in 10 indicators. It is oversold at -7 or lower and overbought when at +7 or higher. I am mostly interested in oversold readings when the long-term trend is up. Once ObOs10 becomes oversold, I then look for short-term signals to suggest an end to the correction. These include 4wk High-Low Percent exceeding +30%, %Above 50-day SMA exceeding 60%, %Above 20-day SMA exceeding 70% and a pattern breakout on the price chart.
Oversold Bounces after Outsized Declines
We have three trends at work in the market now. First, the long-term trend is up (bull market). Second, the medium-term trend is down after the outsized declines in April. Third, the short-term trend is up with the breakout at 510.
SPY broke short-term resistance at 510 on Friday and gained another 1% on Monday. Technically, we have a short-term breakout and short-term trend reversal. The breakout level at 510 becomes support and a close below this level would call for a re-evaluation. Thus, the breakout is bullish until proven otherwise and I am using August 2023 as my guide here. SPY experienced an outsized decline then (red shading), broke short-term resistance with a 4.5% bounce (low to high) and then peaked in early September. Broken resistance turned support (red-green line) and the August breakout failed on September 15th.
RSI is approaching a moment of truth for this oversold bounce. As noted above, the S&P 500 and Nasdaq 100 breadth indicators have yet to achieve breakout status that would further this oversold bounce. The same is true for RSI. The bull range for RSI is 40 to 100 and the bear range is 0 to 60. A break above 60 puts RSI in a bull range, while a break below 40 puts RSI in a bear range. RSI broke above 60 and turned green in early November and stayed bullish until mid April, which is when it broke below 40 and turned red. RSI bounced along with SPY and is near 60. This is the area where oversold bounces typically fail (see September-October 2023).
The next chart shows QQQ with an outsized decline in mid April and RSI breaking below 40 to move into a bear range. These are medium-term bearish signals that reversed the bull signals from early November. This is when RSI surged above 60 to move into a bull zone and QQQ broke falling channel resistance. Short-term, QQQ broke out with a close above short-term resistance on Friday and gained another 1.1% on Monday. The breakout zone is the first level to watch for a failure. A close below 432 would call for a re-evaluation.
As with SPY, I am comparing the current breakout with the breakout in late August 2023. QQQ peaked soon after this breakout and RSI never made it back above 60. RSI is currently near 60 and this is the moment of truth for the breakout.
Chart Analysis, Setups and Trading Ideas
The following charts show price bars with the 200-day SMA (red line), the price-relative (ITB/RSP ratio) with the 200-day SMA and the percentage difference between the 5 and 200 day SMAs. On the price chart, I am looking for tradable pullbacks within a bigger uptrend or bullish consolidation patterns. With the price-relative, I am looking for relative strength. The price-relative (ITB/RSP ratio) rises when the ETF or stock outperforms. And finally, the percentage difference between the 5 and 200 day SMA is bullish (long-term uptrend) with a move above 3% and stays bullish until a move below -3%. This basically measures the tide or long-term bias.
Home Construction ETF, Lennar and DR Horton
The chart below shows the Home Construction ETF (ITB) hitting a new high at the end of March and falling back to a support zone in late April. After firming for two weeks, the ETF broke out with a gap surge on Friday. A strong gap-breakout should hold. A close below 103 (green line) would fill the gap and call for a re-evaluation.
The next chart shows Lennar (LEN) with a similar setup/signal.
The next chart shows DR Horton (DHI) with a similar setup/signal.
Cybersecurity ETF and Crowdstrike
I featured the Cybersecurity ETF (CIBR), Software ETF (IGV), Cloud Computing ETF (SKYY) and Semiconductor ETF (SOXX) last Thursday (here). All four corrected over the last few months so I outlined the bottom picking areas and the breakout levels to watch. The chart below shows CIBR with a falling wedge correction. The bottom picking zone is 51-52, which his marked by the 50% retracement, early January low (support) and lower trendline extension. CIBR bounced in late April and then pulled back last week to establish a lower resistance level. A break above last week’s high would provide the first signal. The middle window shows the price-relative flattening near the 200-day SMA and a break above the mid April high would show a return to relative strength.
The next chart shows Crowdstrike (CRWD) with a falling wedge correction that retraced 33% and returned to support from the February-March lows (green shading). CRWD firmed around 300 and broke out with a pop the last two days. I view this breakout as bullish with a re-evaluation level set at 287 (the late April low).
Cloud Computing ETF Firms within Consolidation
The next chart shows the Cloud Computing ETF (SKYY) hitting a new high in early February and consolidating since this high. Data centers and cloud services represent the picks and shovels for AI development. Overall, a consolidation within an uptrend is a bullish continuation pattern and a breakout at 98 would signal a continuation higher. Chartists looking for a jump on this breakout should watch short-term resistance at 94. A breakout here would be short-term bullish and increase the odds of a bigger breakout at 98. The early May low marks re-evaluation support at 89. Here are the top holdings: GOOGL, AMZN, ORCL, NTNX, PSTG, ANET, MSFT, IBM, DELL, MDB, CSCO, APP, HCP, AKAM, NTAP, HPE.
Semiconductor ETF Breaks Out
The next chart shows the Semiconductor ETF (SOXX) hitting a new high and correcting with a falling channel. SOXX broke out of this channel with a gap-surge the last two days. This breakout is bullish until proven otherwise. Thus, it is important that the gap-surge holds. The early May low marks first support at 206 and a close below this level would argue for a deeper pullback.
Software ETF Challenges Short-term Resistance
The next chart shows the Software ETF (IGV) with a falling channel correction. Within this falling channel, the swing was down from late March to late April. IGV firmed in the upper 70s and is on the verge of breaking short-term resistance, which I marked at 82 last Thursday. A breakout here would increase the odds of a bigger channel breakout.
