QQQQ SHOWS RELATIVE WEAKNESS WITH BREAKOUT SHORTFALL -- NETWORKING AND INTERNET GROUPS WEIGH ON TECH SECTOR -- ORACLE AND CISCO BREAK CONSOLIDATION RESISTANCE -- XLF STALLS NEAR RIGHT SHOULDER RESISTANCE -- REGIONAL BANK SPDR BREAKS WEDGE RESISTANCE
QQQQ SHOWS RELATIVE WEAKNESS WITH SHORTFALL... Link for todays video. Big techs are showing relative weakness this week as the Nasdaq 100 ETF (QQQQ) lags other major index ETFs. The Dow SPDR, S&P 500 SPDR and Russell 2000 ETF all broke above their September highs on Tuesday, but the Nasdaq 100 ETF failed to exceed its corresponding high and shows some relative weakness. Chart 1 shows QQQQ surging to resistance on Tuesday and then falling back on Wednesday. Failure to breakout along with the other ETFs is a sign of short-term relative weakness. This is just a minor problem for now. A resistance break is needed to put this key tech ETF back on track. QQQQ started showing relative weakness with the sharp decline and short-term support break on Monday. Tuesdays bounce fell short of a breakout and the ETF is again showing relative weakness on Wednesday. Another move below 48.5 could give way to a deeper pullback towards broken resistance around 47.
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Chart 1
NETWORKING AND INTERNET GROUPS WEIGH ON TECH SECTOR ... Tech weakness on Wednesday came from stocks in networking, internet and software. Chart 2 shows the First Trust Internet ETF (FDN) falling over 2% with a long red candlestick. Akamai, Amazon and Google, weighed on FDN. Chart 3 shows the Networking iShares (IGN) also falling over 2% with a long red candlestick. Both ETFs are up substantially since late August and showed relative strength throughout September. These two are now starting to show relative weakness. Notice that the price relatives peaked in late September and turned down sharply today. As with QQQQ, the Networking iShares and Internet ETF failed to break above their late September highs on Tuesday. Both have yet to break short-term support, but both filled Tuesdays gaps and gave back their gains. We should be watching support levels closely. Support breaks would argue for a correction of the September advance and weakness in these two groups would weigh further on tech stocks.
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Chart 2
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Chart 3
ORACLE AND CISCO BREAK CONSOLIDATION RESISTANCE... Oracle (ORCL) and Cisco (CSCO) provided a couple of bright spots in an otherwise weak tech sector. Chart 4 shows Oracle surging through resistance with a sharp advance the first part of September. The stock consolidated after this surge and formed a rather tight consolidation. In fact, the pattern looks like a pennant. Flags and pennants are continuation patterns that represent a rest within an ongoing trend. The prior move, which is up in this case, provides the trading bias. A break above resistance would signal a continuation higher. ORCL broke pennant resistance, but closed off of its intraday high as broad market weakness weighed. Chart 5 shows CSCO surging the first half of September and then stalling the last 3-4 weeks. This pattern looks like a flag. A break above flag resistance would signal a continuation higher.
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Chart 4
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Chart 5
XLF STALLS NEAR RIGHT SHOULDER RESISTANCE... While tech stocks showed relative weakness on Wednesday, the finance sector held up well as the Finance SPDR (XLF) consolidates just below an important resistance level. Chart 6 shows XLF within a trading range since summer. Range resistance is just above 15 and range support resides around 13.5. Looking at the pattern since August 2009, it looks like a large head-and-shoulders top is taking shape. This pattern would be confirmed with a break below the summer lows. As long as range support holds, I am keeping a close eye on range resistance for a possible breakout. XLF surged towards resistance at the end of August, but stalled with a 3-4 week consolidation just below 15. The ETF perked up with a nice gain on Tuesday and stalled with a small loss on Wednesday. A follow through breakout above resistance would be bullish. This would be a big plus for the broader market. I am watching support around 14 for early signs of a bigger breakdown. Failure to break resistance and a move below this level would be quite negative. As XLF now stands, the finance sector is showing relative chart weakness because it is the only sector SPDR that has yet to break above its summer highs. The indicator window shows CCI moving above zero in early September to turn momentum bullish. A move below zero would turn momentum bearish.
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Chart 6
REGIONAL BANK SPDR BREAKS WEDGE RESISTANCE... While the Finance SPDR stalls below resistance, the Regional Bank SPDR (KRE) is showing some relative strength with an eight week high. Chart 7 shows KRE breaking above wedge resistance with a move higher the last six weeks. Notice how the resistance breakout around 21 turned into a support zone. Also note that the decline retraced around 62% of the July-April advance. This Fibonacci retracement level marks a good spot for support and a reversal. I am marking the wedge breakout at 22, which should hold. A move back below 22 would call for a reassessment. Regional banks represent a subset of the finance sector with 51 stocks in this ETF. The top holding (Fulton Financial FULT) weighs around 2.93%, while the bottom holding (Bancorpsouth BXS) weighs just over 1%. KRE represents a good cross-section of the industry.
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Chart 7
While the percentage gain lags the broader market, the Regional Bank SPDR is outperforming the Finance SPDR. The indicator window shows price relatives comparing KRE to SPY (black) and XLF (red). Price relatives are simply ratio charts. KRE is outperforming when the ratio rises and underperforming when the ratio falls. The KRE:SPY price relative remains weak, but the KRE:XLF price relative turned up the last few weeks (blue arrow). Admittedly, the upturn is still small, but it is something we should keep an eye on moving forward.
