Video and Report Headlines
Broad Market Analysis
- Most Stocks and Stock ETFs will follow SPY and QQQ
- More Weakness than Strength in Broader Market
- SPY Gets Bounce within Downtrend
- QQQ Hits Reversal Zone
Chart Analysis, Setups and Trading Ideas
- Technology SPDR Has a Bear Flag Working
- Semiconductor ETF Forms Bear Flag
- Communication Services SPDR Breaks Triangle Resistance
- Software ETF Hits Key Retracement
- Cyber Security ETF Hits New High
- Paychex Forms Flag after Breakout
- Regeneron Breaks Out and Leads
- Mercury Systems Breaks Out of Triangle
- General Electric Bounces after Support Break
The next Chart Trader will be posted on Thursday, October 19th.
SPY and QQQ are holding up and still in uptrends. However, some 63% of stocks in the S&P 1500 are below their 200-day SMAs and in long-term downtrends. The small-cap and mid-cap index ETFs are trading well below their 200-day SMAs and near their spring lows. The weight of the evidence is bearish for stocks. SPY and QQQ are in the midst of oversold bounces and I am marking short-term supports levels to watch. Short-term support is important because support breaks would signal a continuation of the downtrends that started in August. Most stocks and stock ETFs will follow SPY and QQQ.
Small and Mid Caps Seriously Lagging
QQQ is the only major index ETF with a decent looking chart. The image below shows line charts for SPY, QQQ, the S&P MidCap 400 SPDR (MDY), the Russell 2000 ETF (IWM), the S&P 500 EW ETF (RSP) and the Russell Microcap ETF (IWC). SPY and QQQ are the only two above their 200-day SMAs (red lines). QQQ is the only one with a shallow corrective pattern working (falling wedge). The decline in SPY was steeper and formed a falling channel.
Small-caps (IWM), equal-weight S&P 500 stocks (RSP) and mid-caps (MDY) are below their 200-day SMAs and near their low for the year (blue shading). These were trading near their February highs in July and fell all the way to their spring lows. The right hand corner shows the Russell Microcap ETF (IWC) as the weakest of the group with 52-week lows in October.
QQQ is the strongest of the major index ETFs. Strength in QQQ, Nasdaq 100 stocks, is helping out SPY, which is still above its rising 200-day SMA. That’s it. The rest of the market is suffering.
SPY Gets Bounce within Downtrend
Even though SPY is above its rising 200-day SMA, the weight of the evidence is bearish for stocks. The red dashed lines mark a falling channel to define the immediate downtrend. SPY became oversold as the OBOS5 indicator dipped to -3 in late September and started its bounce when SPX %Above 20-day SMA crossed above 20% (green arrow).
As far as upside targets for SPY, broken resistance and the 66.7% retracement target a move to the 440 area (red shading). SPY dipped on Thursday-Friday and bounced on Monday. This bounce means we can mark short-term support with Friday’s low. A close below 430 would reverse the short-term upswing and signal a continuation of the bigger downtrend.
QQQ Hits Reversal Zone
QQQ is in a downtrend since August and hit a resistance-reversal zone. The bigger trend is down with a falling wedge taking shape. These patterns are typical for corrections within bigger uptrends. However, broad market conditions are bearish and QQQ is a stock-based ETF. This decreases the likelihood of a breakout and new high.
Short-term, QQQ got an oversold bounce the last few weeks and this bounce is hitting a resistance-reversal zone. Broken support turns into resistance and the bounce retraced 66.7% of the prior decline (red shading). Also notice that RSI is at the top of its momentum range (50-60). This is momentum resistance. QQQ fell on Friday and bounced on Monday. Friday’s low now marks short-term support and a break here would reverse the upswing.
Chart Analysis, Setups and Trading Ideas
Semiconductor ETF Forms Bear Flag
The Semiconductor ETF (SOXX) has two patterns working. First, the ETF surged 36% and then retraced 50-67 percent of this advance with a falling wedge. Technically, this is a big correction and a wedge breakout would be quite bullish.
Short-term, the ETF bounced in October and hit a resistance-reversal zone. This puts SOXX at a moment of truth. It either breaks out of the big falling wedge or fails and continues lower. A bear flag formed as the ETF retraced 66.7% of the September decline. This flag is a bearish continuation pattern and a break below Friday’s low would signal a continuation lower. I would then target a move to the 440 area.
A Bear Flag for XLK
XLC Breaks September High
Software ETF Hits Moment of truth
The Software ETF (IGV) also formed a triangle after a big advance (+29%). The ETF surges in early October and reversed the downswing within this triangle. Now comes the tricky part because the bounce retraced 67% of the September decline. This is a make or break zone for IGV. The ETF fell on Thursday-Friday and then bounced on Monday to establish short-term support. Adding a buffer, a close below 347 would be short-term bearish and could lead to further weakness, especially if SPY and QQQ break short-term support.
Cyber Security ETF Leads with New High
Paychex Forms Flag after Breakout
PAYX surged some 24% and then corrected hard with a decline that exceeded the 200-day SMA. This decline, however, retraced around 67% (2/3) of the prior advance and formed a channel of sorts. Both the pattern and retracement amount are typical for corrections. PAYX broke out of this channel with a big surge in early October. This breakout is bullish and sets the tone going forward. Short-term, the stock surged and then stalled with a falling flag the last five days. A flag breakout would signal a continuation higher.
Regeneron Breaks Out and Leads
The Biotech ETF (IBB) is not performing well, but Regeneron (REGN) is bucking the trend with a breakout in mid October. The stock surged 24% into late August and then consolidated with a falling flag into October. REGN broke out of this flag with an advance above 840 and this signals a continuation of the bigger uptrend. Note that REGN hit a new high intraday on Friday and is leading. I would re-evaluate on a close below 820.
Mercury Systems Breaks Out of Triangle
Mercury Systems (MRCY) is in a long-term downtrend, but showing strength since summer. SPY is down since August, but MRCY is up 2.58% and showing relative strength. The green dashed lines show an rising channel (uptrend) since the June low. MRCY surged in the second half of August and then consolidated with a triangle. The stock then broke out of this triangle with a surge on October 9th. This breakout is bullish until proven otherwise and I will set a re-evaluation level at 36.
General Electric Bounces after Support Break
General Electric (GE) was one of the best performing stocks in 2023 as it doubled from mid December to mid July. The stock formed two equal highs in the 118 area and broke support with a decline into October. GE bounced with the rest of the market in early October, but turned down the last three days and broke wedge support. This signals a continuation of the September decline. Next support is in the 100 area. I would set a re-evaluation level at 112.
Marriott Forms Bear Flag
Tripadvisor Forms Bear Wedge
