Video and Report Headlines
Broad Market Analysis
- SPY Signals Continuation of August Decline
- QQQ Breaks Flag Support
Chart Analysis, Setups and Trading Ideas
- US Oil Fund becomes Extremely Overbought
- Energy SPDR Hits Resistance Zone
- Oil & Gas Equipment & Services ETF Will Follow Oil
- Copper Miners ETF Forms Bearish Continuation Pattern
- Williams Sonoma Hits Resistance Zone
- Monster Beverage Trends Lower Since May
- Microsoft Forms Evening Doji Star
The next Chart Trader will be posted on Tuesday, September 26th.
The near-term outlook is negative with SPY and QQQ in corrective mode. Today’s report will put forth some downside projections, but take these with a pinch of salt. Or rather, take these with a handful of salt and a shot of tequila. Projections are subject to change should price action and conditions warrant. Correlations usually rise when SPY and QQQ move into correction mode or during bear markets. This means most stocks and stock-based ETFs will follow the lead of the S&P 500.
Note that I covered several bearish developments on Tuesday [7]:
- Weakness in S&P 500 breadth (%Above 200-day, %Above 50-day SMA)
- New lows outpacing new highs in the S&P 500
- Small-caps and mid-caps lagging and under pressure (IWM, MDY)
- Flag breaks in the Technology SPDR (XLK) and Semiconductor ETF (SOXX)
- Leading breakdowns in Retail (XRT), Regional Banks (KRE) and Housing (ITB)
- Risk-off since July as high beta (SPHB) underperforms low volatility (SPLV).
The near-term outlook is negative with SPY and QQQ in corrective mode. Today’s report will put forth some downside projections, but take these with a pinch of salt. Or rather, take these with a handful of salt and a shot of tequila. Projections are subject to change should price action and conditions warrant. Correlations usually rise when SPY and QQQ move into correction mode or during bear markets. This means most stocks and stock-based ETFs will follow the lead of the S&P 500.
SPY Signals Continuation of August Decline
SPY broke down with a sharp decline over the last four days. The ETF closed below 442 on Wednesday to forge a lower low and reverse the upswing. On the chart below, SPY fell sharply in the first half of August, rebounded into early September and turned back down over the last two weeks. We now have a lower high from late July to early September. The advance into early September was a counter-trend move and this week’s breakdown signals a continuation of the August decline.
The downside projection to the 405-420 area is based on five factors. First, the gray zone marks a support zone from the February high and April lows. Second, a 50% retracement of the March-July advance would extend to the 420 area. Third, a 50% retracement of the October-July advance would extend to the 408 area. Fourth, the rising 200-day SMA is in the 418 area. Five, the market is seasonally week from mid September to mid October. As logical as this all sounds, it is still a projection and the trend is what matters the most. Initial resistance is set at 450 and a close above this level would call for a re-evaluation.
QQQ Breaks Flag Support
The next chart shows QQQ closing below 370 on Tuesday and falling sharply on Wednesday. QQQ broke flag support and this break signals a continuation of the August decline. The downside projection is in the 320-340 area. The blue shading marks a 50-67 percent retracement of the March-July advance and the rising 200-day SMA is in the 328 area. Initial resistance is set at 378 and a break above this level would call for a re-evaluation.
It is worth noting that the long-term trends are still up for SPY and QQQ. Both recorded new highs in July and both are above their rising 200-day SMAs. Their Trend Composites are also positive. The advances from March to July were exceptionally strong (QQQ +35% and SPY +18%). If these advances represent two steps forward, then a 50% retracement represents one step backward. Bottom line: SPY and QQQ are in correction mode.
Chart Analysis, Setups and Trading Ideas
US Oil Fund becomes Extremely Overbought
There is an old saying that the cure for high oil prices is high oil prices. In other words, demand will wane as prices climb and supply will eventually exceed demand. The same is perhaps true for inflation. The cure for high inflation is high inflation. Demand will wane as prices climb and consumers cut back on spending. This drop in demand is what will ultimately cure inflation.
The chart below shows USO becoming overbought in July and even more overbought in September. Yes, there is overbought and then there is OVERBOUGHT. RSI exceeded 70 in late July, early August and late August. It then exceeded 80 in mid September. This creates an exceptionally overbought condition that could lead to a pullback. The blue zone marks a prior resistance zone in the low 70s and this would be the target for a pullback.
Energy SPDR Hits Resistance Zone
The next chart shows the Energy SPDR (XLE) surging 22% from mid June to mid September. XLE hit resistance from the November-January highs and RSI exceeded 70 twice in the last two months. This means XLE is at resistance, overbought and ripe for at least a pullback. The ETF reversed its short-term upswing with a break below the early September low. The initial downside target is in the 85 area. A close above 93 would call for a re-evaluation.
Oil & Gas Equipment & Services ETF Will Follow Oil
Copper Miners ETF Forms Bearish Continuation Pattern
Williams Sonoma Hits Resistance Zone
Williams Sonoma (WSM) is part of the Consumer Discretionary sector and the retail industry. The Retail SPDR (XRT) is one of the weakest groups right now. WSM is in a large trading range over the past year with support in the 110 area and resistance in the 146 area. The stock surged in late August and then consolidated into September. It is holding up well considering the broad market environment. I would normally draw a bull flag on this chart, but my bias is bearish because of market conditions and industry group performance. As such, I am more inclined to think that resistance at 146 will hold and we will see a near-term peak. A break below support at 138 would reverse the upswing. A close above 145 would call for a re-evaluation of my bearish bias.
Monster Beverage Trends Lower Since May
Microsoft Forms Evening Doji Star
