Video and Report Headlines
- Weakness Appearing withing the Nasdaq 100
- 4wk High-Low Percent Indicators Remain Bullish
- Using the ATR Trailing Stop to Define the Uptrend
- COPX and XME Break Out
- Moderna Challenges 40wk SMA
- Illumina Consolidates at 40wk SMA
The next Chart Trader will be posted on Tuesday morning, March 12th.
We remain in a bull market and the short-term trends are up for the major index ETFs. I am seeing weakness within the Nasdaq 100 and S&P SmallCap 600, but improvements within the S&P 500 and S&P MidCap 400. Today’s report will then look at 4-week High-Low Percent for the major index ETFs. Performance improves when combining signals from the Nasdaq 100 and S&P 500. This indicator combination remains short-term bullish. I will also show how to use the ATR Trailing Stop to define the short-term uptrends for SPY and QQQ.
Weakness Appearing withing the Nasdaq 100
The chart below shows the percentage of stocks above the 50-day SMA for the S&P 500, Nasdaq 100, S&P MidCap 400 and S&P SmallCap 600. 71% of S&P 500 stocks and 63% of mid-cap stocks are above their 50-day SMAs. No problem here. These two also show improvement over the last three weeks (green arrows). 54% of Nasdaq 100 stocks and 46% of small-cap stocks are above their 50-day SMAs. These are the laggards recently. Moreover, these two lines fell over the last three weeks (red lines). This decline is the most pronounced in NDX %Above 50-day SMA. The Nasdaq 100 led the market higher this year and the leader is stumbling over the last few weeks. The image below is linked to a comparable chart at StocksCharts, but the numbers are slightly different. This could be because my data provider (Norgate) uses data that is NOT adjusted for dividends.
4wk High-Low Percent Indicators Remain Bullish
The next chart shows 4-week High-Low Percent for the same four indexes. I am most interested in the Nasdaq 100 and S&P 500. 4-week High-Low Percent is the percentage of stocks making 4-week highs less the percentage making 4-week lows. 4-week highs reflect short-term strength, while 4-week lows reflect short-term weakness. These indicators trigger bullish with a move above +20% and bearish with a move below -20%. Note that bullish signals stay active until there is a move below -20%. This strategy triggers bullish when both the S&P 500 and Nasdaq 100 have active bullish signals. The red and green arrows on the chart show these signals.
This strategy turned bullish on November 2nd and remains bullish. The green shading shows when SPX and NDX 4-week High-Low Percent are bullish. Each one triggered bearish (red lines), but not at the same time. SPX was bearish in mid January and NDX was bearish in mid February (red shading). They were not bearish at the same time so the combination signal did not trigger. October was the last time both had active bearish signals (red shading). Most importantly, both are currently bullish. A bearish signal would trigger should both indicators exceed -20%.
Using the ATR Trailing Stop to Define the Uptrend
The chart below shows SPY with the ATR Trailing Stop (red line). This line is 3 ATR(22) values below the highest close. I was studying some strong short-term uptrends and they tend to hold until a break below this stop. A decline below the ATR Trailing Stop means prices fell more than three ATR(22) values. Such a decline would mark an outsized decline and show the most selling pressure since the advance began.
A strong advance started with a breakout in late March 2023 (lower left). The red line is the ATR Trailing Stop. This short-term uptrend held until SPY fell more than 3 ATR(22) values (red arrow on August 9th). This signal is a little more timely than the 50-day SMA. Looking at the current uptrend, SPY held the ATR Trailing Stop throughout this advance (December, January, February and into March). This stop is currently at 499.86 and a close below 499 would signal an outsize decline. Such strong selling pressure could signal the beginning of a corrective period.
The next chart shows QQQ with the same ATR Trailing Stop (3 x ATR(22)). Working from March 2023 (lower left), we can see that this stop held during the entire advance from April to July. QQQ broke the ATR Trailing Stop on August 9th and this 3 ATR(22) drop signaled a trend change. This was the outsized decline. Fast forward to November and we can see a breakout surge and the ATR Trailing Stop holding until early January. QQQ fell 3.7% in five days and broke the ATR Trailing Stop. This outsized decline, however, did not foreshadow a short-term trend reversal. Instead, QQQ immediately rebounded and continued higher. I could widen the stop by using 4 for the multiplier (4 x ATR(22)), but prefer to consider it a whipsaw (bad signal) and use 3 for the multiplier. The ATR Trailing Stop (3 x ATR(22)) is currently at 429.59 and holds the key to the short-term uptrend.
Chart Analysis, Setups and Trading Ideas
COPX and XME Break Out
The Copper Miners ETF (COPX) and Metals & Mining SPDR (XME) were highlighted last week [7] with bullish patterns and both broke out. EA was also highlighted, but it failed to hold its breakout. The first chart shows COPX breaking out of the falling wedge on Monday, dropping on Tuesday and surging over 3% on Wednesday. The green line marks the re-evaluation at 35.
The next chart shows XME breaking out on Monday as well. The ETF fell rather hard on Tuesday, but recovered on Wednesday to keep the breakout alive. The green line marks re-evaluation support at 55.
Moderna Challenges 40wk SMA
Moderna (MRNA) captures the excesses of the post-covid surge in stocks with a 2400% gain from March 2020 to September 2021. The stock then fell 85% with a decline from around 450 to 70. Clearly, this stock is highly speculative with above average volatility. While this decline retraced much more than two thirds of the prior advance, it did return to the “visual middle” of the monster advance (blue dotted rectangle). A big falling wedge formed and this pattern could be a massive correction after an even more massive advance. Most recently, MRNA surged with the market from late October to early January and briefly broke its 40-week SMA. It then fell back in 2024 and I see a bullish setup on the daily chart. Long-term, the January peak established resistance and a breakout at 118 would be long-term bullish. Such a move would also put MRNA above its 40-wk SMA.
The next chart shows daily bars. First, MRNA surged 72% from early November to mid January. This is an outsized move that could foreshadow a long-term trend reversal. The stock hit resistance from the August-September highs (red shading) and fell back with a falling channel. This decline retraced 67% of the prior advance and returned to the mid December breakout. Broken resistance turns support and the 67% retracement is a potential reversal zone. MRNA surged off this Support-Reversal Zone and broke channel resistance. The stock then consolidated with a pennant and broke out with a bounce on Wednesday. Overall, the channel breakout is bullish and opens the door to a resistance challenge at 118. The gap-surge on 22-February triggered this breakout and should hold. A close below 87 would argue for a re-evaluation.
Illumina Consolidates at 40wk SMA
Illumina (ILMN) remains in a long-term downtrend, but the stock surged with the broad market and is consolidating near resistance. A breakout would be long-term bullish. The first chart shows weekly bars with a steep falling price channel (red dashed lines). ILMN surged to the top of this channel and the falling 40-week SMA (mid November to mid January). Even though this advance is impressive, a follow through breakout at 150 is needed to fully reverse the long-term downtrend.
The next chart shows daily candlesticks to focus on the surge and consolidation. ILMN surged 58% and then consolidated between 128 and 148 this year. The consolidation is too long to be considered a flag, but it is still a consolidation after a sharp advance. This means it is a bullish continuation pattern and a breakout at 148 would provide confirmation. I would then target a move to the 180-190 area (blue shading). For reference, the red line shows the ATR Trailing Stop (3 x ATR(22)) at 131.25. This level held over the last three months because pullbacks were less than 3 ATR(22) values. A pullback greater than 3 ATR(22) values would show stronger selling pressure.
