Note that I am travelling this week and there is no video.
Videos will resume in December.
Report Headlines
- ZBT versus CBM
- QQQ Trend Model Remains Bullish
- SPY and QQQ are Short-term Overbought
- Cyber Security and Software Lead within Tech
- SMH Leads within Semiconductor Group
- United Rentals Tests Breakout Zone
- Palo Alto Breaks out of Consolidation
- Global Pay Surges and Consolidates
- Vertex Becomes Oversold at Support
The next Chart Trader will be posted on Wednesday evening, November 29th.
The broader market remains mixed. The S&P 500 SPDR (SPY) is performing well because it is weighted by market cap and Nasdaq 100 stocks account for a third of the ETF. The Nasdaq 100 ETF (QQQ) is performing well because tech stocks are leading the market and the tech sector accounts for 57% of QQQ. Tech also accounts for 29% of SPY. Non-tech stocks, small-caps, mid-caps are split, at best. In short, there is only one game in town right now: tech. Outside of tech, I am also upside leadership in the Uranium ETF (URA), the Insurance ETF (KIE) and the Aerospace & Defense ETF (PPA).
ZBT versus CBM (Thrust vs Trend)
Zweig Breadth Thrust triggers [7], but trend-following CBM needs more participation to turn bullish. The chart below shows SPY with the Keltner Channel (65,2,65), the S&P 1500 Zweig Breadth Thrust (ZBT1500) and the Composite Breadth Model. The ZBT1500 triggered bullish when the 10-day EMA of S&P 1500 Advance-Decline Percent moved from below -20% to above +23% within ten days (3-Nov). The 5-day SMA of SPY was also above the lower line of the Keltner Channel. This signal remains valid as long as the 5-day SMA (blue line) holds above the lower line of the Keltner Channel.
The bottom indicator window shows the Composite Breadth Model [3], which is more like a trend-following indicator. It caught a big uptrend from late May 2020 until January 2022 and then whipsawed the last 18 months. The ZBT1500 is a short-term thrust indicator that triggers within a 10-day period. It provides the early alert for a possible trend-changing thrust. The CBM, in contrast, measures trend participation using S&P 500 and S&P 1500 trend indicators. The trend indicators have yet to show enough upside participation to turn bullish. The CBM remains at -3 and net bearish. Thus, the CBM has yet to confirm the Zweig Breadth Thrust. We need to see the percentage of S&P 500 and S&P 1500 stocks above their 200-day SMAs exceed 60%.
QQQ Trend Model Remains Bullish
Trend models and indicators need extended trends to work. The S&P 1500, S&P 500, S&P MidCap 400 and S&P SmallCap 600 are broad indexes with different sectors and industry groups. While the components of one or two sectors may trend, lack of trends in the other sectors will detract from the “trendiness” of the overall index. The Nasdaq 100 and QQQ are more concentrated with one sector accounting for 57% (tech). Broad strength within the tech sector is usually enough to lift QQQ and maintain a strong uptrend.
The chart below shows QQQ with the Trend Model in the indicator window. This model includes the percentage of stocks above the 100, 150 and 200 day SMAs, the 10-day EMA of Advance-Decline Percent and High-Low Percent. Four of the five indicators are bullish and the NDX Trend Model is at +3. Note that some 70% of Nasdaq 100 stocks are above their 150 and 200 day SMAs. Also notice that the Trend Model was bullish from late May 2020 to late January 2022 and bearish from late January 2022 to early February 2023. It has been bullish since early February. This model clearly shows more “trendiness” than the Composite Breadth Model. It also confirms the leadership of QQQ and the tech sector.
SPY and QQQ are Short-term Overbought
SPY and QQQ sport similar patterns with falling channels into late October and big breakout surges in November. Both hit new highs in July and then retraced a portion of the March-July advance with the falling channels. The breakouts are bullish, but both are short-term overbought after sizable moves the last 20 days. The sharpness of these advances triggered the Zweig Breadth Thrusts. SPY is up over 10% in 20 days and QQQ is up over 13%. Timing a pullback is a big challenge because under-invested money managers are likely to buy any dip in the coming days or weeks. This is why we could see some sort of zigzag higher from here.
Both charts show potential support-reversal areas to watch should we see a pullback (blue shading). Pullbacks typically retraced one to two thirds of the prior advance. Any pullback now could be on the shorter side (1/3). Pullbacks can also return to the breakout zone where prior resistance turns support. Taken together, the blue shadings on the right mark these potential support-reversal zones.
Chart Analysis, Setups and Trading Ideas
Cyber Security and Software Lead within Tech
The Technology SPDR (XLK), Cyber Security ETF (HACK) and Software ETF (IGV) are leading within the tech sector because they recorded 52-week highs here in November. XLK and IGV broke out of corrective patterns, while HACK extended its zigzag higher. All three are short-term overbought after big advances the last 20 days. Unsurprisingly, there are no setups on these charts right now. I marked support-reversal zones for XLK and IGV with the blue shading.
HACK is more volatile so I am hesitant to choose a support-reversal zone. However, sticking with the same methodology, broken resistance and the 33% retracement mark the support-reversal zone in the 53-54 area.
SMH Leads within Semiconductor Group
The Semiconductor ETF (SMH) is the strongest of the semiconductor ETFs (SMH, XSD, SOXX). The chart below shows SMH with a falling channel correction and a breakout with the November surge. The ETF is up over 20% in 20 days and quite overbought short-term. The breakout zone and 33-50 percent retracements mark a possible support-reversal zone in the 150-155 area.
United Rentals Tests Breakout Zone
United Rentals (URI) broke out of a falling channel with the November surge and fell back towards this breakout. First, the long-term trend is up because the stock recorded a 52-week high this summer. It then fell back into October and surged in November to establish long-term support in the 390 area. Overall URI broke out of a falling channel and this is the active signal. Short-term, the stock fell back the last six days and almost retraced a third. The breakout zone and 33% retracement are in the 455 area (blue shading). This is the potential support-reversal zone to watch for a bounce after a throwback to the breakout zone.
Palo Alto Breaks out of Consolidation
Palo Alto is part of the red hot cybersecurity group. The stock recorded a 52-week high in June and then corrected hard into August. PANW then forged an island reversal and surged to a new high in October. The stock moved into a consolidation in November and the overall pattern looks like a flag. PANW is attempting a breakout and another new high. A breakout would signal a continuation of the October advance. I would mark support at the October-November lows.
Global Pay Surges and Consolidates
Global Payments (GPN) is very volatile, but evidence is building to support a long-term trend reversal. First, the stock broke double bottom resistance with a massive summer surge. Second, GPN hit 52-week highs in August and September. Volatility reared its ugly head as the stock fell back below its 200-day SMA in October. Despite a deep decline, the falling channel could be a deep correction after the June-September surge. GPN is now attempting a breakout with the November surge. The stock formed a small triangle after this surge and a breakout at 114 would be bullish.
Vertex Becomes Oversold at Support
Vertex Pharmaceuticals (VRTX) is a strong stock in a weak sector. The stock is in a long-term trend with a rising channel since June and a 52-week high in early November. VRTX got hit hard in mid November with an 11 percent decline in eight days. This decline looks ugly, but the long-term trend is still up and support is at hand (green shading). VRTX was also short-term oversold last week. The stock is showing signs of firmness already and could be poised to bounce off support. Short-term, a pennant formed and a breakout at 355 would be bullish.
