Video and Report Headlines
- SPY Stalls Out after a 50% Retracement
- QQQ Reverses Upswing within Falling Wedge
- SOXX and XLK Break Flag Support
- Group Leaders (KIE, URA, HACK, XLE, IHF, PPA)
- Gold Challenges August-September Highs
- PPA Stalls after Surge
- L3Harris Breaks Out and Consolidates
- Tesla Breaks Wedge Support
- Salesforce Forms Bearish Wedge
The next Chart Trader will be posted on Tuesday, October 24th.
The weight of the evidence remains bearish for stocks. 62% of S&P 500 stocks and 65% of S&P 1500 stocks are below their 200-day SMAs. The S&P 500 EW ETF, S&P MidCap 400 SPDR and Russell 2000 ETF are well below their 200-day SMAs and near the bottom of their 10 month ranges. Several key industry group ETFs are in long-term downtrends. The Home Construction ETF is below its 200-day SMA and the Retail SPDR is near the low end of its 12-month range. Some large-caps and large-cap techs are still holding up, but the broader market is more bearish than bullish.
SPY Stalls Out after a 50% Retracement
SPY remains in a downtrend with a lower high in August and a lower low in September. The ETF became oversold in early October after a 7% decline and got an oversold bounce into mid October. This bounce retraced around half of the September decline and stalled out around 435. SPY fell 1.3% on Wednesday, but did not close below Friday’s low, which marks short-term support. Nevertheless, I expect a support break because the bigger trend is down and the broad market environment is bearish. The downside target for SPY is in the 416-418 area (blue shading). Broken resistance turns into support and a decline to this area would retrace 50-67 percent of the March-July advance.
QQQ Reverses Upswing within Falling Wedge
QQQ remains in a downtrend with a falling wedge taking shape the last few months. The trend is down as long as the wedge falls. A break above 374 would reverse this downtrend and be bullish. Short-term, the ETF broke support from last Friday’s low to reverse the upswing. Thus, the swing within the falling wedge is down. In other words, the short and long term trends are aligned. This argues for further weakness and targets a move below the late September low. A break above 374 would negate this bearish view.
The indicator window shows RSI with its bull (40-80) and bear (20-60) ranges. RSI moved into a bear range with a decline below 40 in mid August. RSI then peaked in the high 50s in late August and mid August. The 50-60 zone represents momentum resistance and a break above 60 would turn RSI bullish again.
Chart Analysis, Setups and Trading Ideas
SOXX and XLK Break Flag Support
Group Leaders (KIE, URA, HACK, XLE, IHF, PPA)
There are not many leaders out there, but here are a few holding up well over the last few months.
- Insurance ETF (KIE)
- Uranium ETF (URA)
- Cyber Security ETF (HACK)
- Energy SPDR (XLE)
- Healthcare Providers ETF (IHF)
- Aerospace & Defense ETF (PPA)
The chart below shows six leaders within the stock market. All six are above their 200-day SMAs. Five of the six are up in October. URA is down, but its decline retraced around a third of the prior advance. KIE and HACK hit new highs in mid October and are leading the leaders. XLE and PPA came to life with the recent events in the Middle East. The Healthcare Providers ETF (IHF) is bouncing off range support (blue shading).
Gold Challenges August-September Highs
The Gold SPDR (GLD) surged in October as tensions in the Middle East flared up. GLD is challenging resistance from the August-September highs and a breakout would reverse the downtrend (falling channel). Overall, this channel retraced 50-67 percent of the November-May advance (27%). As such, it looks like a big correction and a breakout would signal a continuation of the prior advance. This would target a move to new highs.
GLD is short-term overbought after a 7% advance. Note, however, that this is the third such advance in the past year. GLD was sharply higher after the early November surge and modestly higher after the mid March surge (green arrows). Traders can also consider waiting for a 2-5 day pullback. The blue shading shows a 4-day pullback in November and a 2-day pullback in March.
PPA Stalls after Surge
The chart below shows the Aerospace & Defense ETF (PPA) with a choppy uptrend since December. The ETF hit a 52-week high in July and then fell all the way back to its May lows (green shading). Defense stocks did not offer a good defense during the September decline. PPA surged on October 9th and then consolidated with a pennant. Overall, there are two strategies to play this. A pennant breakout at 83.2 would signal a continuation higher. Alternatively, traders could wait to see if there is a pullback to the 80 area (blue shading).
L3Harris Breaks Out and Consolidates
The next chart shows L3Harris (LHX) surging off a 52-week low on October 9th. LHX broke resistance from the mid September high and then consolidated. The blue lines show a pennant, but it is not the most picture-perfect pennant. There are three black candlesticks after the 9-October surge. LHX then formed four smaller candlesticks inside the range of the prior black candlesticks. This amounts to a consolidation after a big surge and a breakout would be bullish.
Tesla Breaks Wedge Support
Tesla reported earnings on Wednesday and the stock traded lower after hours. I am not sure if there is a trade here because the stock is already down 10%. I do, however, think there is room for further downside. TSLA fell sharply in July-August and then retraced around 67% with a bounce into mid September. The stock broke down in the second half of September, bounced into October and broke down again over the last four days. I see lower highs since summer and a downtrend. The blue shading marks next support in the 204-214 area. Note that Tesla accounts for 19.42% of the Consumer Discretionary SPDR (XLY).
Salesforce Forms Bearish Wedge
Salesforce (CRM) broke head-and-shoulders support and then bounced with a rising wedge. Overall, I think the trend is down and this rising wedge is a short-term bearish continuation pattern. CRM was oversold in early October and bounced with the rest of the market. Nevertheless, the stock broke support in late September and is trending lower. A break below wedge support would signal a continuation of the September decline and target a move to the low 180s (blue shading).
