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.... An Abrupt Change in Leadership .... News and No Man's Land .... New High Parade Continues .... Uptrends are Slowing, Not Reversing .... A Strong Surge for Small-caps .... Finance, Tech, Industrials and Materials Lead .... Healthcare and Utilities Take a Dip .... Consumer Discretionary Gets Anemic Bounce .... Energy SPDR Breaks Summer Highs .... Strong Selling in Consumer Staples .... TLT Hits Short-term Reversal Zone .... Gold Returns to Breakout Zone .... Light Crude Battles Resistance .... Dollar Firms within Downtrend .... |
----- Art's Charts ChartList (updated September 22nd) -----
An Abrupt Change in Leadership
We witnessed an abrupt shift in leadership over the last three to four weeks. Small-caps were lagging in mid August and then led the market higher over the last four weeks. The S&P 500 SPDR is up 3.26% since August 18th and the Russell 2000 iShares is up twice as much (6.5%). We can also see a changing of the guard in the sectors over the last three weeks. The first PerfChart below shows finance (green), industrials (light blue) and energy (teal) lagging the last three weeks of August. Meanwhile, the technology (pink), healthcare (purple) and utilities (cordovan) sectors were leading. The second PerfChart shows finance, industrials and energy leading the last three weeks. Technology and utilities are now lagging.
At this point, the abrupt changes in leadership are short-term issues for some groups. In other words, small-caps, finance and energy are still lagging long-term, even though the Finance SPDR hit a new high and the S&P SmallCap iShares is close to a new high. Energy is in the midst of a sharp oversold bounce, but Light Crude is hitting resistance in the $50 area and remains short of a breakout. As far as I am concerned, the Industrials SPDR and Materials SPDR are the real standouts this month because they are leading AND they hit new highs.
News and No Man's Land
There is a difference between chart "news" and chart "setups". Typically, I file new highs and big advances in the "news" category. A new high is clearly a sign of strength and affirms the overall trend, but it is often not a trading setup or an actionable event. In contrast, a pullback within an uptrend is a setup, which is an actionable event. This tells me to be on guard for a short-term reversal that could lead to a new high. The idea is to get in before the new high!
We saw pullbacks into mid August in XLI, XLB, XLV, IBB, HACK, MOO and XME. The bigger trends were up and these pullbacks represented an opportunity, not a threat. XLI, XLB, XLV, IBB and MOO surged to new highs and these new highs are simply news. The time to be thinking about action was a month ago! As far as I am concerned, it is now time to sit tight and wait for the next setups to emerge. The example below shows IBB reversing in mid August, surging to new highs and then forming a pennant. Technically, this is a bullish continuation pattern and a breakout at 335 would signal a continuation of the prior surge.
New High Parade Continues
Speaking of news, note that the EW S&P 500 ETF and S&P 500 SPDR hit new closing highs this week, while the S&P SmallCap iShares and Russell 2000 iShares are very close to new highs. Similarly, the Technology SPDR, Industrials SPDR, Materials SPDR and Finance SPDR hit new highs. Among the industry group ETFs, we have Internet (FDN), Broker-Dealer (IAI), Agribusiness (MOO), Defense (PPA), Semis (SOXX) and Biotech (XBI) hitting new highs. Another week and another array of new highs. This "news" confirms the ongoing bull market and tells me that the path of least resistance is clearly up. The chart below shows the Broker-Dealer iShares (IAI) hitting a potential reversal zone in late August and this was pointed out in Art's Charts. The new high is clearly bullish, but it is just news as far as I am concerned.
Uptrends are Slowing, Not Reversing
When looking at the charts for the S&P 500 SPDR (SPY) and the Nasdaq 100 ETF (QQQ), I see uptrends that are slowing, not reversing. Slowing is just a normal part of the aging process. Heck, I am much slower now than I was 20 years ago! In any case, the charts show a steep surge from November to March and then a slower advance from April until now. SPY has been zigzagging higher within a rising channel, which is marked with the green trend lines. After another bounce and 4% advance off the August lows, I would not be surprised to see a pullback towards the lower trend line and the flag breakout zone (244-245). Such a move would likely lead to the next setup in SPY.
The next chart shows QQQ with a steep trend line extending up from from December to March and a less steep trend line from March to now. The slope of the trend line tells us that the current advance is slower. The fact that is slopes up tells us the path of least resistance is up. Even though QQQ is lagging the last few weeks and having trouble around 145, I am not interested in short-term negatives because the bigger trend is up and this is the dominant force. A pullback into the 140-143 area would likely lead to the next setup and this would capture my interest.
A Strong Surge for Small-caps
The S&P SmallCap iShares (IJR) surged over 6% the last four weeks and 10-day RSI moved to its highest level of the year. This is bullish "news" because it shows the strongest buying pressure of the year. Of course, this is also followed by the strongest selling pressure of the year (late July to mid August). Funny how that works. Overall, the green zone defines a grinding uptrend that has been in place since December. The Raff Regression Channel defines the current upswing with short-term support marked at 70.
Finance, Tech, Industrials and Materials Lead
As noted at the beginning, these four sectors hit new highs this week and they represent around 50% of the S&P 500. Throw in new highs in healthcare and utilities earlier this month, and it is clear that the majority of the market is doing just fine. The Finance SPDR (XLF) is the newest sector joining the leadership group and this sector accounts for 14.4% of the S&P 500. The chart shows XLF plunging ahead of Irma and surging with a gap and breakout in mid September. I missed this move because of the downside dip, but will keep financials on my radar for pullbacks (setups).
The Industrials SPDR (XLI) surged around 4% in the last two weeks and hit a new high. The green lines mark a rising channel with the upper trend line coming into play soon. This is not a "hard" resistance level, but a move to this level would make XLI quite extended and ripe for a pullback, which would create the next opportunity.
The Materials SPDR (XLB) is also near the upper trend line of a rising channel and getting quite extended after a 6% advance in 4-5 weeks. The new high is bullish, but it is time for me to sit tight and wait for the next setup to emerge.
The Technology SPDR (XLK) surged off support in mid August and hit a new high on Tuesday. The ETF has struggled a bit since mid July, but the overall trend remains up. The August lows and April trend line mark first support in the 56.5-57 area.
Healthcare and Utilities Take a Dip
The HealthCare SPDR (XLV) and the Utilities SPDR (XLU) both hit new highs in mid September and pulled back the last one to two weeks. The trends are still up and this means these pullbacks are potential opportunities. The first chart shows broken resistance turning into first support for XLV. A move into the 80-81 area and a short-term oversold reading in RSI would create a setup to watch.
The Utilities SPDR (XLU) is trickier because it's performance is tied to the 20+ YR T-Bond ETF (TLT). These two are positively correlated and this means XLU will likely move in the same direction as TLT. XLU hit a new high and pulled back with a falling wedge. Technically, this is considered a small correction within the bigger uptrend. A breakout at 54.3 would end the pullback and signal a continuation higher.
Consumer Discretionary Gets Anemic Bounce
The Consumer Discretionary SPDR (XLY) bounced over the last few weeks, but this bounce does not appear that strong. The ETF is barely up since August 18th and well below its prior highs. The Raff Regression Channel defines this upswing with support marked at 88.70, a close of which would be bearish. Such a break would also put the bigger double top in play.
Energy SPDR Breaks Summer Highs
The Energy SPDR (XLE) extended its run with a break above the summer highs. Technically, this forges a higher high and this is the first step to a trend reversal. A subsequent higher low is the second step so I will be watching the pullback, should it occur. The channel break around 64 marks the first area to watch for support on any pullback.
Strong Selling in Consumer Staples
The Consumer Staples SPDR (XLP) is considered the weakest of the nine sector SPDRs right now. The ETF peaked in early June, formed a symmetrical triangle and broke the triangle trend line. I am also sure we could find a head-and-shoulders pattern from March to September if we wanted. The failure at resistance and triangle line break are bearish. A parallel line extends to the 52.5 area and marks the downside target.
TLT Hits Short-term Reversal Zone
The 20+ YR T-Bond ETF (TLT) fell sharply over the last two weeks and is almost short-term oversold. I say "almost" because RSI(10) is currently at 41 and needs to dip below 40 to be considered in the oversold zone. TLT is also at the wedge trend line and near support in the 124-126 area. A close below 124 would break support and reverse the 2017 uptrend. The red lines mark a Raff Regression Channel to define the recent pullback and mark resistance at 126.6. A successful support test and a breakout here would reverse the pullback, and could open the door to new highs.
The 10-yr T-Yield ($TNX) and the 30-yr T-Yield ($TYX) are also near make-or-break areas. The chart below shows both trending lower since March with new lows for the year in early September. The surge over the last two weeks is quite strong, but so was the surge in late June and early July. At this point, I want to see more before turning long-term bullish on yields and bearish on Treasury bonds. Namely, breakouts at 23 (2.3%) and 29 (2.9%) are required.
Gold Returns to Breakout Zone
The Gold SPDR (GLD) fell sharply as the 10-yr T-Yield rose and the Dollar edged higher. Gold was quite overbought after the run from 116 to 128 and entitled to a pullback. The broken resistance zone around 122-123 turns into the first support zone to watch for a bounce. GLD fell into this zone on Thursday and I am using a Raff Regression Channel to define this downswing. A move above 125.1 would reverse this downswing.
Light Crude Battles Resistance
Brent crude remains strong and broke above its May high, but Light Crude is still struggling to break above its July high. The chart shows November Crude (^CL17) edging above $50 this week and challenging the July high. A breakout here would be quite bullish and argue for further strength to the mid 50s. The green trend line and early September low mark support at 47.5 for the current advance. A close below 47.5 in November Crude and 9.6 in USO would be bearish for oil.
Dollar Firms within Downtrend
The Dollar remains in a downtrend overall, but shows some signs of firming. The April trend line and August 31st high mark first resistance just above 24. A breakout here would argue for an oversold bounce within a bigger downtrend. The upside target would be in the 25 area. The middle window shows the Euro ETF (FXE) with support marked at 112.5, a break of which would reverse the immediate uptrend.
Charting Notes:
- Art's Charts ChartList (updated September 22nd)
- Copper ETN (JJC) hits potential reversal zone after pullback within uptrend.
- 1-yr and 2-yr Treasury Yields hit new highs.
- Australia All Ords Index ($AORD) breaks support.
- $FTSE breaks from Europe and falls while $DAX and $CAC rise.
- The Airline ETF (JETS) is holding its breakout.
- NKE is consolidating before the next shoe drops.
- LOW is consolidating near double bottom resistance.
- AAL, DAL and LUV are leading the airline stocks.
- ADI, an internet-of-things play, still looks strong.
- The SPY:IEF ratio hit a new high as stocks outperforming bonds.
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