OVERBOUGHT APPLE WEIGHS ON OVERBOUGHT QQQ -- QQQ EQUAL-WEIGHT ETF LAGS APPLE-DOMINATED QQQ -- NETWORKING AND SEMICONDUCTORS LEAD TECHS LOWER -- MATERIALS AND UTILITIES SECTORS SHOW RELATIVE WEAKNESS
OVERBOUGHT APPLE WEIGHS ON OVERBOUGHT QQQ ... Link for todays video. Selling pressure in the technology sector and Apple (AAPL) is weighing on the Nasdaq 100 ETF (QQQ) today. Chart 1 shows QQQ testing the steep trendline extending up from mid December. After a 20% advance (54 to 65), the ETF is ripe for a correction period that could involve a pullback or a sideways consolidation. A lot, of course, will depend on the big Apple, which accounts for over 17% of the ETF. Chart 2 shows Apple testing a steep trendline as well. A relatively modest correction could extend to the 490-500 area. Before leaving QQQ, note that the top ten holdings account for a whopping 56.44% of the ETF (invescopowershares.com). Clearly, this ETF is top heavy with the biggest components dominating price action.
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Chart 1
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Chart 2
EQUAL-WEIGHT QQQ LAGS APPLE-DOMINATED QQQ ... The Apple affect is undeniable when comparing the performance of the Nasdaq 100 ETF and the Nasdaq 100 Equal-Weight ETF (QQEW). The top ten holdings for QQEW show that Apple accounts for just 1.22% and the top ten components account for less than 13% (ftportfolios.com). QQEW is clearly a better representative of the Nasdaq 100 as a whole. Both QQQ and QQEW rose substantially the last few months, but QQEW significantly underperformed QQQ over this period. Chart 3 shows QQEW with an advance from mid December to mid February. Instead of hitting new highs last week, the ETF hit resistance from the mid February high and is starting to lag its big brother. The indicator window shows the Price Relative (QQEW:QQQ ratio) hitting resistance from its October-November highs and falling sharply the last four weeks. This confirms that QQEW is underperforming QQQ.
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Chart 3
NETWORKING AND SEMICONDUCTORS LEAD TECHS LOWER... With or without Apple, signs of weakness are popping up elsewhere in the technology sector. Early weakness from leading groups means we could see a broad market correction sooner rather than later. Semiconductors, which are a key component of the technology sector, are showing relative weakness with a break down today. Chart 4 shows the Semiconductor HOLDRS (SMH) breaking below its mid February lows with a sharp decline the last four days. Notice that the ETF actually formed a lower high last week and the Price Relative peaked in mid February. SMH is showing relative weakness and this is not a good sign for the technology sector or the Nasdaq. This support break signals the start of a correction that could extend to the 31.50 area, which marks broken resistance.
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Chart 4
Chart 5 shows the Networking iShares (IGN) peaking on February 17th and moving sharply lower the last two weeks. Broken resistance in the 28.7 area marks the next support zone. The indicator window shows the Price Relative forming a lower high in mid February and breaking down the last two weeks. IGN is underperforming the broader market.
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Chart 5
MATERIALS AND UTILITIES SECTORS SHOW RELATIVE WEAKNESS... While the Technology SPDR (XLK) and Consumer Discretionary SPDR (XLY) continued steadily higher in February, the Industrials SPDR (XLI) sputtered early and has been underperforming the past month. PerfChart 6 shows relative performance for the nine sector SPDRs. Since February 2nd, the consumer discretionary (blue) and technology (green) have been leading the market. Relative strength from these two is positive, but it is overshadowed by relative weakness in the industrials sector and flat performance from the finance sector. Notice that the industrials sector is seriously underperforming the S&P 500 and the finance sector is barely outperforming.
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Chart 6
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Chart 7
PerfChart 7 shows the absolute gain/loss for the nine sectors and the S&P 500. Except for materials, all sectors are up over this timeframe. The materials sector is clearly the weakest of the lot. On a calculation note, relative performance equals the percent gain/loss less the percent gain/loss in the S&P 500, which is the benchmark. SPDRs with greater gains than the S&P 500 or smaller losses than the S&P 500 are outperforming. SPDRs with smaller gains than the S&P 500 or greater losses than the S&P 500 are underperforming.
INDUSTRIALS AND MATERIALS SECTORS TESTS MID FEBRUARY LOWS ... I wrote about the Russell 2000 ETF (IWM) breaking below its mid February lows on Friday and the Semiconductor HOLDRS (SMH) breaking support today. These lows mark support for a number of key sector and industry group ETFs. The more that break these lows, the worse off for the market overall. Chart 8 shows the Industrials SPDR (XLI) testing support from the mid February lows with a decline the last two days. A break would argue for a deeper correction that could extend to broken resistance in the 34.50 area. The indicator window shows XLI performance peaking in early February and the sector underperforming SPY the last four weeks.
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Chart 8
Chart 9 shows the Basic Materials SPDR (XLB) stalling in February and testing its mid February low today. The Price Relative (XLB:SPY) shows the ETF underperforming SPY since February.
