QQQ TAGS THE 200-DAY MOVING AVERAGE -- S&P MIDCAP 400 SPDR FORMS FALLING WEDGE -- DEFENSIVE SECTORS OUTPERFORMING -- UTILITIES SPDR BOUNCES OFF SUPPORT -- BROKEN SUPPORT TURNS RESISTANCE FOR XLY -- TREASURY YIELDS BACK OFF RESISTANCE
QQQ TAGS THE 200-DAY MOVING AVERAGE... Link for todays video. Chart 1 shows the Nasdaq 100 ETF (QQQ) hitting the rising 200-day moving average and the Percent Price Oscillator (PPO) moving into oversold territory. This combination may set the stage for an oversold bounce. Also notice that the 50-61.80% retracement zone and broken resistance mark support in the 64-65 area. Support remains potential because there are no signs of firmness in price. Broken support and the October trend line mark short-term resistance at 67. A break above this level is needed to reverse the six week slide. In the indicator window, the PPO moved below 1% for the third time in twelve months. Prior moves below 1% suggested that QQQ was oversold, but the oscillator needs to turn up to signal that downside momentum has actually stopped. At the very least, the PPO needs to break above its signal line to indicate an upturn in momentum.
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Chart 1
S&P MIDCAP 400 SPDR FORMS FALLING WEDGE... Chart 2 shows the S&P MidCap 400 SPDR (MDY) peaking in mid September and forming a falling wedge the last six weeks. While the medium-term trend may be up (since June), this falling wedge defines the short-term downtrend. Even though there is support in the 177.5 area from the late August consolidation, we have yet to see a bullish catalyst that would solidify support. MDY has the same problem as QQQ. Both need a bullish catalyst to reverse their short-term downtrends. This could be a gap up and strong close, a trend line break or a break above the October highs. The indicator window shows the price relative (MDY:SPY ratio) trending lower since February. The ratio formed a higher low in early October and turned up this month, but remains short of a breakout that would suggest a return to relative strength.
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Chart 2
DEFENSIVE SECTORS OUTPERFORMING ... Chart 3 shows the performance for the top six sector SPDRs since September 14th. I picked September 14th because this is when the S&P 500 peaked. The Technology SPDR (-7.70%), Energy SPDR (-4.63%) and Basic Materials SPDR (-4.65%) are the worst performing sectors since then. The S&P 500 is down just over 3%, but the Utilities SPDR (XLU) and the Healthcare SPDR (XLV) are up. These two show both relative and absolute strength. In addition, notice that the Consumer Staples SPDR (XLP) is holding up relatively well with just a 1% loss, which is much less than the loss in $SPX. This means the three defensive sectors are showing relative strength since September 14th. Put another way, the stock market is clearly playing defense now and avoiding the riskier sectors.
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Chart 3
UTILITIES SPDR BOUNCES OFF SUPPORT... Chart 4 shows the Utilities SPDR (XLU) getting a bounce off support on Monday. XLU found support near the 50% retracement in mid September and broke resistance in early October. The ETF pulled back to support with a rather sharp decline last week, but got a bounce the last three days to reinforce this level. Two lows now mark support here and a break would clearly reverse the uptrend. The indicator window shows the XLU:SPY ratio turning up in mid September and moving higher the last six weeks. This means XLU is outperforming SPY and money is rotating into this defensive sector.
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Chart 4
BROKEN SUPPORT TURNS RESISTANCE FOR XLY... Chart 5 shows the Consumer Discretionary SPDR (XLY) starting the day strong with a move above 46, but succumbing to selling pressure and falling back below 46. Overall, the ETF broke support in the 46 area last week and this support break is not passing without a fight. I would currently call it broken and project further weakness toward the next support zone, perhaps in the 44.5 area. It would take a move above 46.5 to negate this support break and put the bulls back on track.
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Chart 5
Retailers could make the difference for the consumer discretionary. Chart 6 shows the Retail SPDR (XRT) in a downtrend since mid September. The ETF broke support with last weeks decline and then consolidated. A surge back above last weeks high would negate this support break and provide the early catalyst for a potential trend change. A break above the falling flag trend line is needed to fully reverse this downtrend.
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Chart 6
TREASURY YIELDS BACK OFF RESISTANCE... Even though the trading week is short, it is a big week for the treasury market. Note that several key economic reports are scheduled the next three days and the employment report is due Friday. Signs of strength in the economy usually push treasuries lower and yields higher. Signs of weakness usually put a bid into treasury prices and push yields lower. Chart 7 shows the 10-year Treasury Yield ($TNX) hitting resistance in the 18.5-19 area and falling back the last two days. The trend since late July is up, but this failure at resistance is not encouraging for stocks. Notice that stocks and treasury yields are positively correlated for the most part. A breakout at 19 (1.9%) would be bullish for yields, bearish for treasury bonds and bullish for stocks. Downside follow through below 16 (1.6%) would be bearish for yields, bullish for treasury bonds and bearish for stocks. This weeks economic data may tilt the balance and we could see a decisive move after the election. Directional movement could be limited until we get some clarity on the election. Chart 8 shows the 5-yr Treasury Yield ($FVX) hitting resistance and breaking below 7.5 (.75%) today.
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Chart 7
