Video and Report Headlines
Broad Market Analysis
- Bounce Target for SPY
- Momentum Resistance for QQQ
Chart Analysis, Setups and Trading Ideas
- Natural Gas Breaks Out of Base
- Natural Gas ETF and New Fortress Energy
- Fortinet Firms at Support/Reversal Zone
- Network Appliance Turns Up within a Triangle
- Zoetis Bounces off Rising 200-day SMA
The next Chart Trader will be posted on Tuesday, October 17th.
The weight of the evidence remains bearish for stocks. SPY and QQQ are in downtrends the last two months, but they are getting oversold bounces after becoming oversold last week. Large-caps and large-cap techs are leading the market. In particular, software and cybersecurity are two of the strongest groups right now. Elsewhere, we are seeing a rounding bottom in Natural Gas and a breakout in the making. See Tuesday’s report [7] more on broad market conditions.
SPY and Bounce Target
The S&P 500 SPDR (SPY) is getting an oversold bounce withing a larger downtrend. The overall trend is down with the lower high from July to August and the lower low from August to September. SPY was oversold after a 7% decline into October 3rd, and the ETF is up around 3.5% the last six days. Thus, an oversold bounce is underway and I am now marking possible resistance. Broken support turns resistance around 442 and a 66.7% retracement of the 7% decline would extend to 442. Thus, resistance zone for this bounce is set in the 440-442 area.
QQQ and Momentum Resistance
The next chart shows QQQ with a falling wedge over the last few months. Technically, the immediate trend is down as long as this wedge falls. Falling wedges are typically corrective patterns and a breakout at 381 would fully reverse this downtrend. Within the wedge, QQQ broke short-term resistance and the swing is up. This increases the odds of a bigger breakout.
The indicator window shows RSI moving within a bull range from late January to mid August and a bear range since mid August. RSI held the 40-50 zone during pullbacks in February-March and April. It broke 40 in mid August and the 50-60 zone turns into momentum resistance. That, at least, is the theory. QQQ is the strongest of the major indexes and large-cap techs are the strongest group. This means we could see an overshoot, which means RSI could break above 60.
Chart Analysis, Setups and Trading Ideas
Natural Gas Breaks Out of Base
The Natural Gas ETF (UNG) and Natural Gas Futures are breaking out of a large base. Note that Natty was known as the widow-maker in the futures pits because of it’s extreme volatility. Be careful here! The chart shows UNG firming in the 6-8 area from April to October. This looks like a big rounding bottom and a breakout is in the making. Short-term, UNG broke a resistance level in mid August, fell back with a falling wedge and broke out with a surge in October.
The indicator window shows the annualized standard deviation of log changes (21 days). It is currently at 37.29%, which is at the low end of the 1 year range. For reference, the standard deviation is 12.98% for SPY and 15.30% for the Russell 2000 ETF (IWM). Natty is three times as volatile as SPY. Buyer beware!
Natural Gas ETF is More Correlated to Oil
The next chart shows the Natural Gas ETF (FCG) in the top window and the US Oil Fund (USO) in the bottom window. FCG is highly correlated with the price of oil. It does not have a strong correlation to natural gas. FCG is in an uptrend since the July breakout. After a 28% advance, the ETF fell hard into early October and rebounded over the last five days. The decline into October looks like a pullback within a bigger uptrend and a breakout at 26.5 would be bullish. Note that FCG also has above average volatility with a standard deviation of 31.11%.
New Fortress Energy Trades Like Natty
The next chart shows New Fortress Energy (NFE) with a rounding bottom and a few breakouts since early September. NFE is highly correlated to Natural Gas so expect it to follow the commodity. The stock broke out in early September, oscillated around the breakout zone for a few weeks and then plunged in early October. NFE managed to hold above its summer lows and renew the breakout with a surge the last five days. The October low is at 27.43, which is around 19% below current prices. Also note that volatility is very high (54%). The wide stop and high volatility argue for smaller positions. Your position is too big if it keeps you awake at night.
Fortinet Firms at Support/Reversal Zone
Fortinet (FTNT) is part of the cybersecurity group, which is one of the strongest groups right now. Crowdstrike (CRWD) and Palo Alto Networks (PANW), which were featured on September 28th [8], surged to 52-week highs this month. FTNT fell on hard times after an earnings miss in early August (-25% in one day). Note that I know nothing about the fundamentals, except that FTNT is part of the cyber security group. On the price chart, FTNT hit support from broken resistance and the decline retraced 66.7% of the prior (77%) advance. FTNT firmed the last two months and is still trading in this support-reversal zone. As such, I am on alert for an upside breakout. Short-term, I see a breakout with a surge four days ago. I consider this a bullish sign and will set re-evaluation support at 56.40.
Network Appliance Turns Up within a Triangle
Network Appliance (NTAP) is forming a large Symmetrical Triangle after a 32% surge and new high. This pattern represents a consolidation or rest after the big advance. Consolidations digest gains and set the stage for the next leg higher. There are four swings within the triangle and we can get the jump on a bigger breakout by timing these swings. NTAP fell in September and reversed this downswing with a breakout on Wednesday. This short-term reversal is the first sign that NTAP will make a run towards triangle resistance. I am marking re-evaluation support at 74.40 (green line). A breakout at 80 would be longer-term bullish and signal a continuation of the April-July advance.
Zoetis Bounces off Rising 200-day SMA
I featured Zoetis (ZTS) a month ago as it formed a triangle after a 52-week high (12-Sep). Instead of breaking out and continuing higher, the stock broke down and fell with the market into early October. The long-term trend is still up with a series of higher highs and higher lows since December (green dashed lines). ZTS fell to the rising 200-day SMA and turned up the last five days (along with the market). I view the upturn and break above the September trendline as short-term bullish. More importantly, the short and long term trends are aligned again. I will mark re-evaluation support at 170 (green line).
