Video and Report Headlines
Broad Market Analysis
- SPY and QQQ Test Breakout Zones
- Mid-caps and Small-caps Lead Lower
- SPX Breadth Remains Subdued
- High-beta Lags Low-Volatility in September
- Banks, Retail and Housing Turn Down
- BBB Spread Has Yet to Widen
Chart Analysis, Setups and Trading Ideas
- Technology SPDR (XLK)
- Semiconductor ETF (SOXX)
- Software ETF (IGV)
- Cybersecurity ETF (CIBR)
- Cloud Computing ETF (SKYY)
- Gold SPDR (GLD) and Gold Miners ETF (GDX)
The next Chart Trader will be posted on Thursday, September 21st.
It ain’t over until large-caps buckle. SPY and QQQ have yet to break short-term support. These two are holding the market up because we are seeing widespread weakness outside of a few large-caps. The S&P MidCap 400 SPDR and Russell 2000 ETF hit their lowest (closing) levels since late June. The Retail SPDR hit its lowest (closing) level since early June. Retail and regional banks are leading lower. Housing broke down last week and high-beta is underperforming low volatility since July. Outside of SPY, QQQ and a few tech-related ETFs, it is not a pretty picture for the stock market.
SPY and QQQ Tests Breakout Zones
I will start with the charts for SPY and QQQ because these two are at a moment of truth. SPY broke out with a 1.4% surge and long white candlestick on August 29th. This is the active signal right now and it has yet to be proven otherwise. SPY fell back to the breakout zone in the 445 area and bounced with a move back above 450 last week. This bounce did not last long as the ETF fell 1.6% on Friday. This sharp decline pushed SPY back to the breakout zone and a support test is at hand. A close below 442 would break support and argue for a continuation of the August decline. This would target a move to the 405-420 area. Also note that a support break would also usher in a lower high from July to September (red dashed line).
The next chart shows QQQ with a potential rising flag and a break below the flag line last Friday. The ETF managed to firm at 370 on Monday. A support test is at hand and a close below 370 would fully reverse the short-term upswing. A break would signal a continuation of the August decline and target a move to the 320-340 area (blue shading).
Mid-caps and Small-caps Lead Lower
Mid-caps (MDY) and small-caps (IWM) are seriously lagging, both long-term and short-term. IWM just closed below its 200-day SMA. I would, however, not read too much into this “signal” because IWM is a whipsaw machine. Backtests results for the 200-day cross were not good (buy a cross above the 200-day and sell a cross below the 200-day). Since 2003, there were 22 winners (23.66%) and 71 losers (76.34%). The Compound Annual Return was a meager +2.01% and the Maximum Drawdown was a whopping -38.23%. Ouch.
The next chart shows IWM closing at 182.39 (blue dashed line), which is the lowest close since June 26th. As with MDY, IWM surged in the second half of August and then gave it all back over the last two weeks. The immediate trend remains down with short-term support set at 186. A break out here would revive the bulls.
SPX Breadth Remains Subdued
The next chart shows the High-Low Lines with 10-day EMAs (red lines). A High-Low Line is a cumulative line of High-Low Percent, which is the percentage of new highs less the percentage of new lows. High-Low Lines rise when new highs outnumber new lows and fall when new lows outnumber new highs. The indicator windows show the 4, 13, 26 and 52 week High-Low Lines. The 4-week High-Low Line turned down in early August with a move below its 10-day EMA (red shading). It has been below its 10-day EMA for six weeks and this means 4-week lows are consistently outpacing 4-week highs. In other words, more stocks are recording 4-week lows than 4-week highs.
The lower three windows show longer timeframes. The 13-week High-Low Line, 26-week High-Low Line and 52-week High-Low Line all crossed below their 10-day EMAs in early September (red shading). This means 13, 26 and 52 week lows are outpacing 13, 26 and 52 week highs the last two weeks. Bottom line: breadth within the S&P 500 continues to weaken.
The next chart shows SPY with two breadth indicators: %Above 200-day SMA and %Above 50-day SMA. The green arrow-line on the price chart marks a 3.22% advance in SPY (18-Aug to 14-Sep). Despite a good four-week bounce, these two breadth indicators remained subdued (red shading). In other words, a lot of stocks did not partake in this 3.22% advance. Again, we continue to see weakness under the surface. Both indicators need to break their late August highs (red lines) to show a material increase in upside participation.
High-beta Lags Low-Volatility in September
The next chart shows the S&P 500 High Beta ETF (SPHB) in the top window, the S&P 500 Low Volatility ETF (SPLV) in the middle window and the SPHB:SPLV ratio in the lower window. Note that SPHB is down 3.5% the last eight days and SPLV is up 1.6%. Money moved out of riskier stocks and into less-risky stocks. This shows risk off in September. The bottom window shows the SPHB:SPLV ratio peaking in mid July and moving lower the last two months. This means SPHB is underperforming SPLV (risk off). It also means the S&P 500 Low Volatility ETF is outperforming the S&P 500 High Beta ETF.
Banks, Retail and Housing Turn Down
It is hard to be positive when looking at the charts for the Regional Bank ETF (KRE), the Retail SPDR (XRT) and the Home Construction ETF (ITB). Needless to say, these three ETFs represent key areas of the economy. The first chart shows XRT breaking support in mid August and continuing lower into September. XRT closed at its lowest closing level since June 6th and is one of the weakest groups.
The next chart shows KRE breaking a channel trendline in mid August. This channel represents a big counter-trend advance and the breakdown signals a continuation of the February-May decline. After the channel break, the ETF rebounded with the market into late August and formed a bear flag. KRE broke flag support with a sharp decline on September 6th. The ETF then fell 2.7% on Monday and remains under pressure. First resistance is set at 44.
The next chart shows the Home Construction ETF (ITB) breaking pennant support with a sharp decline the last five days. This break signals a continuation of the mid August decline and targets a move to the mid 70s.
BBB Spread Has Yet to Widen
The BBB yield spread fell from mid March to late July and then flattened. Overall, this key spread remains narrow and shows no signs of stress in the credit markets. My red line is set at 1.6 and a move above this level would signal widening in the yield spread. This would show stress returning to the credit markets and be negative for stocks.
Chart Analysis, Setups and Trading Ideas
Tech-related ETFs Likely to Follow Sector and Market
The Software ETF (IGV), Cybersecurity ETF (CIBR), Cloud Computing ETF (SKYY) and Internet ETF (FDN) are holding up better than XLK and SOXX. All four ETFs declined the last five days, but remain above their breakout zones from late August. These four ETFs, however, are still tech-related ETFs. The breakdowns in XLK and SOXX are negative for the group. Breakdowns in SPY and QQQ would reinforce the negative narrative.
