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.... Large-techs Tower over Small-caps .... September is a Coin Flip .... High-Low Percent Indicators are Dragging .... Fewer than 50% of Small-caps Above 200-day EMA .... SPY and QQQ Hold Flag Breakouts .... Monitoring the Upswing in IJR .... Finance Weighs as Healthcare Leads .... The Three Leaders (XLV, XLK and XLU) .... XLB Breaks Out as XLI Gets Cold Feet .... Comcast and Disney weight on XLY .... Finance is Becoming Oversold .... XLE Moves into No Man's Land .... TLT Hits Double Bottom Objective .... Gold Extends on Breakout .... Oil Breaks out of Wedge .... Dollar Extends Down after Flag Break .... Weekend Links ..... |
----- Art's Charts ChartList (updated September 8th) -----
Large-techs Tower over Small-caps
In August we heard a lot about the bearish seasonal patterns for September. The S&P 500 SPDR and Nasdaq 100 ETF finished August on a strong note with QQQ hitting another 52-week high and SPY matching its early August high, which was a 52-week high. Small-caps also bounced in late August, but the S&P SmallCap iShares still finished well below its July high. Also note that SPY and QQQ were up for the month of August, but IJR and MDY were down. Even though IJR and MDY led the market during the late August rebound, they still closed down for the month and are still lagging overall. The PerfChart below shows the performance for seven major index ETFs since August. QQQ is up over the last six weeks, while small-caps and mid-caps are down.
September is a Coin Flip
So what about these seasonal patterns? The chart below shows the monthly seasonal patterns for the S&P 500 over the last nine years. I chose nine years because this captures the current bull run. During this bull run, the S&P 500 closed higher 44% of the time in September, which means it closed lower 56% of the time. This means five of the nine years were down and four of the nine years were down. Note that this includes the current month, which is down so far. Overall, I would say the odds of September closing lower are a coin flip (50/50), which means we pretty much need to ignore seasonal patterns and focus on the charts. The green circle shows the average gain/loss over the last nine Septembers, which includes the current month-to-date). On average, the S&P 500 is up .7% during September over the last nine years.
High-Low Percent Indicators are Dragging
The last decent correction for the S&P 500 occurred in September-October of 2016 and the High-Low Percent indicators are acting similar to that period. The chart below shows the High-Low Percent indicators for the S&P 1500, S&P 500, S&P Mid-Cap 400 and S&P Small-Cap 600. I am mostly focused on the S&P 500 and S&P 500 High-Low% ($SPXHLP). The red shading shows four extended periods when High-Low Percent did not make it above +10%. These periods range from 4 to 14 weeks and the current run is around 6 weeks, and this is the longest run since the 14 week run from August to October. The S&P 500 is around 1% from a 52-week high, but High-Low Percent cannot get back above +10%. This shows limited leadership within the S&P 500 and this could lead to a correction in the coming weeks. Look for a surge above +10% to signal an expansion in leadership and end to the correction.
Fewer than 50% of Small-caps Above 200-day EMA
The breakdown in regional banks is weighing on small-caps because the finance sector is the third largest sector in the S&P Small-Cap 600 (15.47%). Also note that 100 of the 600 stocks in the index come from the finance sector (excluding REITs). The next chart shows the percentage of stocks above the 200-day EMA for the S&P 500, S&P Mid-Cap 400 and S&P Small-Cap 600. Over 60% of stocks in the S&P 500 are above their 200-day EMA and just over 50% of mid-caps are above their 200-day EMA. Less than 50% of small-caps are above their 200-day EMA and this has been the case for most of the last five weeks. We need to see Mid-Cap %Above 200-day EMA (!GT200MID) and Small-Cap %Above 200-day EMA (!GT200SML) get back above 60% to return to health. Here is an article explaining these indicators.
SPY and QQQ Hold Flag Breakouts
SPY hit a new high in early August, corrected with a falling flag and broke out with a surge last week. Stocks were hit hard on Tuesday and SPY fell back to the breakout. The ETF then recovered a bit the last two days. Overall, the flag breakout is bullish and the breakout zone becomes the first area to watch for a failed signal. A close below 244 would negate the breakout and a failed signal could provide the first sign that a correction is upon us.
Monitoring the Upswing in IJR
The S&P SmallCap iShares (IJR) bounced off the 67-68 area for the fourth time this year and led the stock market from August 18th to September 1st. Two weeks of upside leadership, however, is not enough to reverse months of relative weakness. I am still positive on IJR, but will watch the upswing closely for signs of failure, especially after the breakdown in banks and weakness in the %Above 200-day EMA indicator. A Raff Regression Channel defines this upswing with support at 68. A close below this level would reverse the upswing and we could then see a move to the mid 60s.
Finance Weighs as Healthcare Leads
The healthcare, technology and utilities sectors are the strongest in the market right now. XLV hit a new high on Thursday, XLK hit a new high on Monday and XLU hit a new high last week. The Materials SPDR (XLB) is holding its flag breakout, but the Industrials SPDR (XLI) and Consumer Discretionary SPDR (XLY) are looking shaky. Watch these two closely next week. The biggest blow to the market came with the breakdown in the Finance SPDR (XLF). Note that the finance sector accounts for 14% of SPY. The PerfChart below shows SPY with a fractional gain since August, but without the help of the consumer discretionary, finance and industrials sectors.
The Three Leaders (XLV, XLK and XLU)
The HealthCare SPDR (XLV) is the undisputed leader because it was the only one to forge a 52-week high on Thursday. Last week's flag breakout was the most recent signal and support is set in the 78 area. Note: the new high is just the observation and the flag breakout is the actual signal.
The Technology SPDR (XLK) surged off support in mid August and hit new highs near 59. The August lows mark first support and the June lows mark key support. I marked breakouts in several tech-related ETFs in the Art's Charts ChartList. These need to hold to keep XLK strong.
XLU, the bond proxy, continues to follow the 20+ YR T-Bond ETF (TLT) higher. TLT hit a new high on Thursday and XLU is less than 1% from a new high. The Raff Regression Channel marks a tight rising channel with first support at 54.40.
XLB Breaks Out as XLI Gets Cold Feet
The Materials SPDR (XLB) turned up the last three weeks and broke flag resistance in the process. The breakout zone around 54-54.5 turns into the first area to watch for a failure. A close below 54 would negate the breakout.
The Industrials SPDR (XLI) is kind of sitting on the fence. The overall trend is up and there was a mini breakout with the surge above 68 last week. This surge, however, was not that strong and the ETF fell back on Tuesday. GE and UTX are weighing on XLI, but I am seeing strength in some of the other top stocks. The cup is still half full, but the support zone in the 67 area needs to hold.
Comcast and Disney weight on XLY
The on-again off-again double top in the Consumer Discretionary SPDR (XLY) is on-again as media stocks led the ETF lower on Thursday. Comcast was down over 6% and Disney fell over 4%. The chart shows two peaks around 92 and intermittent support in the 88 area. Technically, a close below this support zone would confirm the double top and target a move to around 84. I am also watching the bounce over the last three weeks. A close below 87.8 would break the lower line of the Raff Regression Channel and reverse this short-term upswing.
The Consumer Staples SPDR (XLP) got a bounce the last eight days and this prompted a re-draw on the chart. A large symmetrical triangle could be taking shape with support in the 54.3-54.5 area and resistance in the 56 area. Watch these levels for the next directional clue.
Finance is Becoming Oversold
It is tempting to put energy ahead of finance after this week's plunge in XLF, but XLF did hit a 52-week high in early August and remains above the spring lows. The green trend lines mark an overall uptrend with support in the 23-23.50 area. Notice that RSI moved below 30 for the first time since mid April. Thus, we could be close to a short-term reversal in XLF.
XLE Moves into No Man's Land
The Energy SPDR (XLE) is one of the leading sectors over the last 12 trading days, but it is a lagging sector when looking out further than five weeks. At this point, we have gotten the oversold bounce and the ETF is near the channel trend line. Further strength is certainly possible, especially if oil continues its bounce. However, I think XLE is now in no man's land (short-term overbought in a long-term downtrend). RSI(10) is above 70, CCI(20) is above 150 and the Stochastic Oscillator is above 80.
TLT Hits Double Bottom Objective
The 20+ YR T-Bond ETF (TLT) further extended on its triangle breakout and surged to new highs for 2017. The ETF is now up around 10% year-to-date and this means Treasury yields are at their lowest of the year. Banks do not seem to like this because the Regional Bank SPDR (KRE) is down 10% this year. The current advance has not retraced around 61.8% of the prior decline (July to December 2016). The ETF has also met its objective from the double bottom breakout in April. Retracements and objectives, however, are secondary to the overall trend, which is clearly up. The lower trend line of the rising channel and mid August low mark support in the 125-126 area.
I keep wondering what the message is here from the bond market. Bonds typically rise when economic prospects weaken or deflationary pressures rise (or both). Regardless of the reason, I will not consider it negative for stocks until stocks start underperforming bonds (or TLT starts outperforming SPY). The bottom window shows the TLT:SPY ratio near the upper end of its seven month range. A breakout here would show relative strength in TLT and this would be negative for stocks.
Gold Extends on Breakout
Gold continues to benefit from strength in bonds, falling Treasury yields and weakness in the Dollar. The chart shows GLD breaking above its April-June highs last week and extending higher this week. Accordingly, I extended the Raff Regression Channel to this week's high. The lower line and broken resistance combine to mark the first support zone in the 122-124 area. A throwback to this area could provide a second change to partake in the uptrend.
Oil Breaks out of Wedge
The long-term trend for oil remains down, but the short-term situation improved with a wedge breakout. The late July high, early August high and 2017 trend line mark resistance just above 50 for November Crude. A break above these highs would argue for a bigger trend reversal and be bullish for oil. Short-term, the August pullback ended when USO broke above 10 and November Crude broke above 49. Strong breakouts should hold so chartists can watch 9.6 in USO and 48 in November Crude. Closes below these levels would negate the breakouts.
Dollar Extends Down after Flag Break
The US Dollar ETF (UUP) made good on its flag break in late August and moved to a new low in early September. Likewise, the Euro ETF (FXE) broke out of a wedge and moved to a new high. The flag highs mark first resistance for UUP and the wedge lows mark first support for FXE. Also notice that the Yen ETF (FXY) turned up and the August lows mark support. Almost all currencies are rising along with the Dollar and Tony Dwyer offers an explanation in the video link below.
Weekend Links
Tony Dwyer talks about the weakening Dollar play, the resilient bond market, the demand for housing materials and capital spending surveys.
Craig Moffett, Moffett-Nathanson senior analyst, discusses Comcast's announcement about losing video subscribers to fundamental changes in the business (Youtube, Apple TV, Zulu). He also discusses the core business for cable companies and their pricing power.
Should we Fear the Waning Momentum? Corey Hoffstein of Newfound Research explores momentum by looking at the slope of the 200-day moving average and distance from the 200-day moving average.
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