- Performance Overview.
- Oversold, But Broadsided.
- First Target for S&P 500.
- Nasdaq 100 Breaks 40-week SMA.
- FAANG Stocks Lead NDX Lower.
- Mid-caps and Small-caps Bear the Brunt.
- Downside Participation Expands Furthers.
- Utilities Buck the Selling Pressure.
- REIT ETF Remains with Breakdown.
- Treasuries Gets Some Safe-haven Love.
- Dollar Remains Strong
- Gold Holds Breakout.
- Notes from the Art's Charts ChartList.
... Stocks remain under serious selling pressure and more stocks are feeling the heat. New lows expanded again on Wednesday with 79 stocks in the S&P 500 hitting new lows, 91 stocks in the S&P Mid-Cap 400 and 108 stocks in the S&P Small-Cap 600. All told some 18.5% of stocks in the S&P 1500 hit new lows this week and this number could expand further with more selling pressure today.
Even though stocks seem oversold and ripe for a bounce, timing such a bounce is difficult when the broad market environment is considered bearish. This puts the major index ETFs in a no-man's land of sorts. They are too oversold to consider shorts, but the bear market environment makes longs equally unappetizing.
First Target for S&P 500
The S&P 500 is currently in the midst of its largest four week decline since August 2015 and January 2016. If we look back at these periods, we can see that the S&P 500 went nowhere for a 20 month period from September 2014 to June 2016 (blue outline). Prior to September 2014, the index was up some 80% from October 2011 to September 2014. Thus, a 36 month advance was followed by a 20 month consolidation. Remember this: massive advance followed by long drawn-out consolidation.
Fast forward and we can see a 58% advance from February 2016 to January 2018 (24 months) and some pretty choppy price action over the last nine months. I am not sure how long this "non-uptrend" will last, but we are clearly NOT in a trending market. The 38.2% retracement zone and February lows mark the first levels to watch going forward. Perhaps we may see some support in the 2500 area.
Nasdaq 100 Breaks 40-week SMA
The next chart shows the Nasdaq 100 breaking below its 40-week SMA for the first time since June 2016, over two years ago. The index advanced some 90% during this streak and the pullbacks were very mild during this uptrend. The trend is now reversing and it is time to start thinking about downside targets. Keep in mind that nobody really knows how far or how long a decline will extend. These are guestimates that should be taken with a grain (bucket) of salt. A 38% retracement would carry the index back to the 6300 area and this is the first target zone.
FAANG Stocks Lead NDX Lower
It is hard to be positive on the Nasdaq 100 when three of the five FAANG stocks peaked well before the S&P 500 and broke their summer lows, which are benchmark lows. The bottom window shows Netflix peaking in June and breaking the summer lows in summer! The top window shows Facebook peaking in late July and recording a 52-week low this week. The second window shows Alphabet peaking in late July and breaking its summer lows over the last two weeks. Apple (third window) is holding up the best and reports next week. Amazon is testing its summer lows, but could break today because it is down after hours. Note that Alphabet and Amazon are not reacting well to earnings.
Mid-caps and Small-caps Bear the Brunt
The S&P Mid-Cap 400 and the S&P Small-Cap 600 are fairing much worse than the S&P 500 and Nasdaq 100. Both hit 52-week highs in August and fell over 10% the last eight weeks. $SML is the furthest below its 40-week SMA since January 2016. Even though the index bottomed in early 2016, this decline is coming from a 52-week high and represents the initial breakdown. The decline in January 2016 started from a lower high and represented the second leg. Thus, the current decline could be the first leg and it may take some time for the markets to stabilize.
Downside Participation Expands
The S&P 500 peaked in late September and is down around 7% so far this month. During this timeframe, nine of the eleven sector SPDRs are down, eight of the nine equal-weight sector ETFs are down and all nine small-cap sector ETFs are down. The Utilities SPDR (XLU), EW Utilities ETF (RYU) and Consumer Staples SPDR (XLP) are the only sectors with gains. All but two of the industry group ETFs that I track are up this month: the Gold Miners ETF (GDX) and Silver Miners ETF (SIL). In the S&P 500, 82 stocks (16.4%) are up this month and 418 (83.6%) are down. Just 38 stocks (9.5%) in the S&P Mid-Cap 400 are up and 52 stocks (8.7%) in the S&P Small-Cap 600 are up. Cash is a position because the chances of picking winners in this environment is slim.
Utilities Buck the Selling Pressure
The Unadjusted Utilities SPDR (_XLU) moved lower in late September, became short-term oversold and then surged as the broader market deteriorated in October. This is one of the few, if not the only, oversold signal that worked in late September or early October.
REIT ETF Remains with Breakdown
The unadjusted Vanguard REIT ETF (_VNQ) broke down in late September and fell the first two weeks of October. The ETF managed to reverse near the 61.8% retracement with a bounce back to 79, but I think this is too little too late. The breakdown remains in play and further strength above 81 is needed to negate the breakdown.
Treasuries Gets Some Safe-haven Love
The long-term trend for the 10-yr T-Yield ($TNX) and 30-yr T-Yield ($TYX) is up with big breakouts coming in January and October, respectively. Both hit multi-year highs after the breakouts and these breakouts are holding.
At this point, I do not see any reason to be bullish on the 7-10 YR T-Bond ETF (IEF) and 20+ YR T-Bond ETF (TLT). Both hit 52-week lows in early October and remain in strong downtrends. They did turn up the last two weeks as money moved out of stocks. This move could continue should stocks decline further.
Dollar Remains Strong
The next chart shows the US Dollar ETF (UUP) breaking out of a falling wedge five weeks ago and extending its uptrend, which began with the late April breakout. The Euro ETF (FXE), which accounts for around 57% of the Dollar ETF, broke down in April and failed at resistance in September. The Yen ETF (FXY), which accounts for 13.6% of UUP, is not as weak as the Euro, but broke down this summer and is trending lower.
Gold Holds Breakout
The Gold SPDR (GLD) broke out three weeks ago and this breakout is holding. Overall, GLD remains in a large trading range the last two years. The ETF fell to the 112 area, firmed for a eight weeks and broke short-term resistance with a sharp advance above 115. Even though the Dollar remains strong, this breakout zone is holding and I would stay bullish on gold as long as it holds above 114.
Notes from the Art's Charts ChartList
- New 52-week lows: ITB, SOXX, XSD, KRE, XBI, XES, COPX
- New Lows for 2018: IAI, JETS, KOL, XME, SLX
- I am not highlighting the leaders, but there are no real leaders in October and the broad market environment is bearish.
- The Software iShares (IGV) broke below its summer lows to join the break down parade.
- The Transport iShares (IYT), Oil & Gas E&P SPDR (XOP) and Agribusiness ETF (MOO) also joined the breakdown parade with moves below the summer lows.
- Based on closing prices, the Insurance SPDR (KIE) hit a 52-week high on 24-Sept and plunged to a 52-week on Wednesday (23 days from new high to new low).
- The Mortgage REIT ETF (REM) held up well the last two weeks and firmed, but the break below the summer lows remains in play.
- The REIT iShares (IYR) bounced the last two weeks, but the bigger breakdown remains in play and still bearish overall.
Questions, Comments or Feedback?
I do not take symbol request and I cannot promise to response to all correspondence, but I will read it and take into under consideration. I greatly appreciate all feedback because it helps me improve the commentary and provides ideas for the future.
Plan Your Trade and Trade Your Plan.
- Arthur Hill, CMT
Senior Technical Analyst, StockCharts.com
Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill
