APPLE BREAKS OUT AS QQQ CHALLENGES 2011 HIGHS -- SEMI ETF TESTS MAJOR SUPPORT LEVEL -- AMAT AND TXN WEIGH ON SEMIS -- NETWORKING ETF SHOWS RELATIVE WEAKNESS -- S&P EQUAL WEIGHT INDEX UNDERPERFORMS -- INTERNET ETF POWERS NASDAQ
APPLE BREAKS OUT AS QQQ CHALLENGES 2011 HIGHS... Link for todays video. Led by Apple (APPL), the Nasdaq 100 ETF (QQQ) is once again challenging its 2011 highs. Chart 1 shows AAPL surging through resistance with a massive surge the last four weeks. Even though the breakout is bullish, the stock is up over 20% from its mid June lows and looking quite frothy. The broken resistance zone around 360 turns into support to watch on a throwback.
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Chart 1
Chart 2 shows QQQ clearly benefitting from the surge in its biggest component. After pulling back to the 57-58 area, the ETF resumed its advance with another resistance challenge this week. There are clearly more signs of strength than weakness on this chart. It takes strength to challenge resistance. With renewed strength this week, the Price Relative move further above its April-May highs as QQQ continues to outperform the S&P 500 ETF (broader market). While the performances for AAPL and QQQ are certainly impressive, I am concerned with relative weakness in a few key groups. Read on for the details.
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Chart 2
SEMICONDUCTOR HOLDRS TESTS MAJOR SUPPORT LEVEL... Whats up, or rather down, with semis these days? As noted by John Murphy last week, semiconductor stocks have been under selling pressure and are underperforming the market. While the Nasdaq 100 ETF and the Nasdaq challenge their 2011 highs, the Semiconductor HOLDRS (SMH) is testing its 2011 lows. It is rather odd to see this key group lagging when the broader indices are strong. Chart 3 shows SMH with a massive Double Top taking shape this year. Key support resides at 32. A move below this level would confirm the pattern and trigger a major bearish reversal. Should support ultimately hold, watch last weeks gap zone for signs of strength. A move above the gap would suggest a successful support test and keep the bears at bay.
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Chart 3
AMAT AND TXN WEIGH ON SEMIS... Three stocks account for around 52% of the Semiconductor HOLDRS: Texas Instruments (20.87%), Intel (20.97%) and Applied Materials (10.01%). Chart 4 shows Applied Materials (AMAT) falling around 25% from its March high. Despite a clear downtrend the last 5 months, support may be at hand. Broken resistance, the November consolidation and the 61.80% retracement converge around 12.5 to mark a potential support zone. Potential support is one thing and a actual reversal is another. Resistance is marked at 13.50 and a break above this level is needed to reverse the downtrend.
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Chart 4
Chart 5 shows Texas Instruments (TXN) with a lower high in May and support break in June-July. Notice that the stock gapped down last week and this gap has yet to be filled. At the very least, a surge back above the support break and filling of the gap is needed to revive the bulls. It would take a move above the early July high to fully reverse the current downtrend.
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Chart 5
NETWORKING ISHARES CONTINUES TO UNDERPERFORM... The Networking iShares (IGN) represents another group that has consistently lagged. The indicator window in chart 6 shows the ETF peaking in February and moving lower as the Nasdaq moved higher. These two were moving step-for-step until February, but seriously diverged from March to July. On the bar chart, IGN is trading at a potential support area, but has yet to reverse the five month downtrend. Notice that the ETF retraced 61.80% of the August-February advance with the decline to 30. There is also support in the 29-30 area from broken resistance and the October consolidation. The March trendline and July high mark a resistance area. A break above this level is needed to reverse the downtrend.
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Chart 6
S&P EQUAL WEIGHT INDEX UNDERPERFORMS S&P 500... The smaller stocks within the S&P 500 represent another area of relative weakness within the market. The classic S&P 500 is a market-capitalization weighted index with the largest companies exerting the most influence. The S&P 500 Equal Weight Index evens the scales by treating all components equal. This means the smallest component ( $1.5 billion market cap) gets the same voice as the largest component (> $400 billion market cap). The average market cap in the S&P 500 is around $11.50 billion. Think of the large-caps within the index as the generals. The remaining stocks, which make up the vast majority, can be considered the troops. It is hard to fight a battle if the troops are going one way and the generals the other.
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Chart 7
The S&P 500 ETF (SPY) and the Rydex S&P Equal Weight Index (RSP) capture these two indices. We can compare performance by using a Price Relative, which is a ratio chart (RSP:SPY). This ratio shows the performance of the Rydex S&P Equal Weight Index relative to the S&P 500 ETF. Equal weight outperforms when the ratio rises and underperforms when the ratio falls. Chart 7 shows this ratio forming a lower high in June and breaking support over the last two weeks. Notice that RSP outperformed from August to May, which coincided with a strong uptrend in stocks. Newfound relative weakness is a concern for the overall market.
FIRST TRUST INTERNET ETF HELPS POWER THE NASDAQ ... So just where is the Nasdaq getting its strength? Apple (AAPL) is one big source. The First Trust Internet ETF (FDN) represents another source. Among others, this ETF features Amazon, Google, Ebay, Priceline and Salesforce.com. Google (GOOG) is up over 20% the last four weeks, while Amazon and Salesforce.com (CRM) recently hit 52-week highs. Chart 8 shows FDN edging above its May high and then falling back last week. Even though the new high did not hold, the overall trend is up as there are more signs of strength than weakness. After all, FDN forged higher highs in February, May and July. The ETF established a clear support level with lows in March and June. There can be no downtrend without a break below key support.
