Video and Report Headlines
- Nasdaq 100 Breadth Remains Bullish, the Rest is Bearish
- A Price Surge, but Short-term Breadth Was Lacking
- SPY Surges off Key Retracements
- QQQ Surges off 33% Retracement
- Technology SPDR Breaks Mid October High
- Cyber Security ETF Leads with Tech
- Looking for Follow Through in Cloud, Software and Semis
- 14 Strong Stocks within the Nasdaq 100
- Martin Marietta Breaks October High
The next Chart Trader will be posted on Thursday, November 9th.
Stocks surged last week, but we have yet to see breakouts in SPY and QQQ. These two surged within their falling channel patterns. Last week’s bounces were expected because stocks were oversold, the turn of the month shows a bullish bias and November is seasonally strong. These arguments were laid out last Tuesday [7]. An oversold bounce without follow through is just a dead-cat bounce. We need follow though and expanding participation to produce lasting breakouts. Even though the five day surge led to big percentage gains, I was not impressed with the short-term breadth indicators. In addition, the long-term breadth indicators remain mixed at best, and net bearish at worst. The Nasdaq 100 is the bright spot in the stock market and strength here is helping the S&P 500.
Nasdaq 100 Breadth Remains Bullish, the Rest is Bearish
The Nasdaq 100 continues to do the heavy lifting and prop up the S&P 500. The chart below shows the percentage of stocks above the 200-day SMA for the S&P 1500, S&P 500 and Nasdaq 100. This indicator turns bullish with a move above 60% (green) and stays bullish until there is a move below 40%, which triggers a bearish signal (red). SPX %Above 200-day and S&P 1500 %Above 200-day SMA were firmly bullish from August 2020 to January 2022 (green) and bearish from February 2022 to January 2023 (red). Performance in 2023 is mixed with four signals, and the active signal is bearish since late September.
NDX %Above 200-day SMA signals are more “trendy”. That is to say, there are fewer whipsaws. There was a bull run until early March 2020, a bear run for a few months and then an extended bull run from late May 2020 to January 2022. The indicator was bearish from late January 2022 to late January 2023 and is currently bullish. The S&P 1500 and S&P 500 indicators turned bearish twice in 2023, but NDX %Above 200-day SMA stayed bullish. It dipped to 40.59 in late October and then rebounded to 56.44%.
The market is mixed to bearish if we take these indicators at face value. Just 38% of S&P 1500 and 40% of S&P 500 stocks are above their 200-day SMAs. This means some 60% are below their 200-day SMAs and still in long-term downtrends. These are not bull market numbers. 56.5% of Nasdaq 100 Stocks are above their 200-day SMAs, which means the cup is half full. 82 Nasdaq 100 stocks are also part of the S&P 500 and these stocks account for around a third of the S&P 500 (market capitalization).
A Price Surge, but Short-term Breadth Was Lacking
There was clearly a big surge in prices, but I was not that impressed with short-term breadth. In particular, the Advance-Decline Percent indicators did not exceed 80%. Advance-Decline Percent is the percentage of advancing stocks less the percentage of declining stocks. AD% of 80% means 90% of stocks advanced and 10% declined (90% – 10% = +80%). 80% is a milestone because it shows serious upside participation. The chart below shows Advance-Decline Percent for the Nasdaq 100, S&P 500 and S&P 1500. Not one exceeded 80% last week (blue shading). All three exceeded 74% on Thursday and this was the high point. I would like to see follow through and a big breadth thrust before taking this surge seriously.
Notice that 80+ percent up dates in late March (green shading). This showed strong breadth and the advance continued into July.
SPY Surges off Key Retracements
I can make the case for a long-term uptrend in the S&P 500 SPDR (SPY). The indicator window shows the percentage difference between the 5 and 200 day SMAs. The 5 day SMA is 1.05% above the 200-day SMA and this indicator triggered bullish on February 2nd with a move aboved +3$%. It would trigger bearish with a cross below -3%. This is a long-term trend indicator with lag, which is normal for trend indicators. See this report for details. [8]
If we assume a long-term uptrend in SPY, then the decline into October is a correction within the bigger uptrend. Also notice that this decline retraced 50% of the Oct-Jul advance and 67% of the Mar-Jul advance. These retracements are normal for pullbacks within bigger uptrends. A falling channel formed and SPY broke the upper line with a surge last week. SPY is now challenging the mid October highs and a follow through breakout would reverse the three month decline.
QQQ Surges off 33% Retracement
I can also make the case for a long-term uptrend in QQQ, and a correction since late July. The indicator window shows that the 5-day SMA is 5.84% above the 200-day SMA. This indicator triggered bullish on February 3rd, which was just after the Double Bottom breakout. QQQ led the market into mid July and then fell back with a falling channel that retraced a third of the Dec-Jul advance. QQQ surged with the rest of the market over the last six days and is challenging resistance. A follow through breakout would reverse the downtrend.
Chart Analysis, Setups and Trading Ideas
XLK Breaks Mid October High
The next chart shows the Technology SPDR (XLK) with a massive surge and a break above the mid October high. This chart is similar to QQQ, which makes sense because tech stocks dominate QQQ. The falling channel retraced a third of the January-July advance and this decline is deemed a correction within a bigger uptrend. The breakout reverses the three month slide and signals a continuation of the bigger uptrend.
There are just two negatives. First, XLK is short-term overbought after this surge and could pull back or consolidate. Second, the broad market environment is still bearish. The first indicator window shows that XLK is up 7.93% in seven days. Clearly overbought. The second window counts the consecutive up/down days. XLK is up seven days straight. XLK was up seven days straight in early September and mid October. Mid January was the last time it was up more than 7% with seven straight up days (green line).
Note that I featured XLK, HACK and SOXX last Tuesday [7] because they were oversold and ripe for a bounce.
Cyber Security ETF Leads within Tech (HACK)
The Cyber Security ETF (HACK) is one of the strongest groups within the tech sector. Most tech ETFs were working their way lower from mid July to October. HACK, in contrast, worked its way higher and even tagged a 52-week high in mid October. A rising channel is taking shape after the big oversold bounce the last six days. It is hard to say what will happen with in the channel, but the overall trend is clearly up as long as the channel rises. Support is set at 50.
Looking for Follow Through (Cloud, Software, Semis)
The Cloud Computing ETF (SKYY), Software ETF (IGV) and Semiconductor ETF (SOXX) all surged the last 5-6 days, but they are short of breakouts. Their charts are similar with big advances into July and declines into October. These declines could be corrections after the big advances, but the immediate trends are down until breakouts. This means we need to see follow through and an increase in upside participation within the tech sector. The mid October highs mark resistance. Follow through breaks above these levels would turn the charts bullish.
Strength within the Nasdaq 100
There are definitely some large pockets of weakness within the stock market, but there are also some strong stocks within the Nasdaq 100. Going through the charts, I found 12 NDX stocks that held up during the corrective period from mid July to late October. AMZN and MSFT are also strong, but I did not include these two because they corrected. There are also two non-NDX stocks in the group (CRWD and ZS). These two are part of the cybersecurity group and may join the Nasdaq 100 one day. The 14 stocks are:
ADBE, AVGO, CDNS, CHKP, COST, CRWD, CTAS, META, KLAC, LULU, MU, NTES, SNPS, ZS
The chart below shows KLA Corp (KLA) with a triangle consolidation above its rising 200-day (upper left). On the right, we have Micron (MU) breaking out of a big Ascending Triangle pattern. Lower left we have NTES breaking out of a triangle and hitting a new high.
Martin Marietta Breaks October High
Martin Marietta (MLM) is showing relative and absolute strength with a break above the mid October high. Overall, this infrastructure stock surged 46% into July and then retraced 50% with a decline back to 390. The stock reversed near the blue zone, which marks support from broken resistance. A falling channel formed into October and MLM broke out of this channel. This channel looks like a correction after the 46% surge and the breakout signals an end to this correction. Short-term, MLM is overbought after a 11% surge in seven days. This overbought condition could give way to a pullback or consolidation.
