NET ADVANCES REFLECT BROAD SELLING PRESSURE -- IWM AND QQQ FAIL AGAIN AT CHANNEL RESISTANCE -- FINANCE SECTOR AND REGIONAL BANKS LEAD LOWER -- OIL AND COPPER PLUNGE -- OIL SERVICES AND METALS-MINING ETFS GET STUNG
NET ADVANCES REFLECT BROAD SELLING PRESSURE... Link for todays video. Selling pressure hit the stock market on Wednesday with broad-based declines affecting most areas. All sectors moved lower. Of the 105 Dow Jones industry groups in the sector summary, only two were up at midday. The DJ US Mortgage Finance Index ($DJUSMF) and the DJ US Specialty REITs Index ($DJUSSR) showed modest gains. The DJ US Gold Mining Index ($DJUSPM) sported a fractional loss (-.03%) and was holding up relatively well. We can tell this is a broad decline by looking at the advance-decline statistics for the Nasdaq and NYSE. Chart 1 shows Nasdaq Net Advances ($NAAD) divided by Nasdaq Total Issues ($NATOT) in the indicator window. As a percentage of total issues, Nasdaq Net Advances were at -75% in early afternoon trading. This is the lowest reading in over 6 months and shows widespread selling. Chart 2 shows NYSE Net Advances ($NYAD) divided by NYSE Total Issues ($NYTOT) in the indicator window. Net Advances dipped to their most negative reading since the beginning of June. This shows the most NYSE selling pressure since the rally began.
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Chart 1
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Chart 2
IWM AND QQQ FAIL AGAIN AT CHANNEL RESISTANCE... The Russell 2000 ETF (IWM) and the Nasdaq 100 ETF (QQQ) led the market lower with declines exceeding 2%. With these declines, IWM and QQQ have once again failed at channel resistance. These failures keep the short-term downtrends alive and reinforce the bearish cause. Chart 3 shows IWM forming a long black candle last Friday to reinforce resistance in the 83 area. Even though IWM still has support in the 80-81 area, another failure at resistance is quite negative and opens the door to another leg lower. At this point, 83 is the level to beat for the bulls to regain control.
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Chart 3
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Chart 4
Chart 4 shows QQQ hitting resistance just above 66 over the last four days. As with IWM, there were reasons to expect support in the 65 area. Broken resistance, the 50% retracement and the rising 200-day moving average all converged on the 65 area. QQQ is breaking through these today and we have yet to see a bullish catalyst to reverse the eight week downtrend. A move above the early November high is needed to reverse this downtrend and signal a resumption of the bigger uptrend. Traders can turn to the Commodity Channel Index (CCI) to confirm a breakout. Notice how CCI established resistance just above zero in early October. A break above this high is needed to turn momentum bullish again.
FINANCE SECTOR AND REGIONAL BANKS LEAD LOWER... Selling pressure is hitting the Finance SPDR (XLF) and the Regional Bank SPDR (KRE) quite hard on Wednesday. Chart 5 shows XLF hitting resistance from the September-October highs and falling around 2% Wednesday. The ETF remains above support from the late September low, but a breakdown in this leading sector would be quite negative for the broader market. As the indicator window shows, the finance sector has been one of the strongest sectors since early June. A move below the late September low would break a key support level.
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Chart 5
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Chart 6
Regional banks are getting hit especially hard on Wednesday. Chart 6 shows KRE failing at broken support and falling over 2% on Wednesday. Broken support, the early November highs and the September trendline mark clear resistance at 28.50 for KRE. Barring a recovery and breakout, a move towards the next support level is expected. The indicator window shows the price relative with a series of lower peaks since July.
OIL AND COPPER PLUNGE... There was a clear move to risk-off today as money also moved out of oil and copper. Chart 7 shows the US Oil Fund (USO) failing near the September trend line and plunging over 3% on Wednesday. This move extends the downtrend that began with the mid September support break. The June lows mark the next support zone in the 29-30 area. With this decline, we can set key resistance at 33. A recovery and break above this level would reverse the eight week downtrend. Notice that both USO and IWM have been trending lower the last eight weeks. There is clearly a positive correlation between stocks and oil. The indicator window shows the Commodity Channel Index (CCI) with momentum resistance at 50.
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Chart 7
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Chart 8
Chart 8 shows the Copper ETF (JJC) getting creamed on Wednesday. The ETF peaked in mid September and moved sharply lower the last eight weeks. Copper has now given back almost all of the gains from August-September. The summer lows mark the next support zone in the 42 area. The indicator window shows the Correlation Coefficient for stocks and copper. These two are positively correlated, which makes sense because both reflect economic conditions.
OIL SERVICES AND METALS-MINING ETFS GET STUNG... Weakness in oil is weighing on the energy sector and the Oil & Gas Equipment/Services SPDR (XES). Chart 9 shows XES stalling around 33 the prior eight days and then breaking down with a 3+ percent decline on Wednesday. The 61.80% retracement and broken resistance mark the next support zone in the 31.50 area. There are at least three price swings on this chart and the blue trend lines capture these trends. The September trend line and November highs combine to mark resistance at 34 for XES now. Further weakness is expected until this downswing reverses with a break above 34.
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Chart 9
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Chart 10
Chart 10 shows the Metals & Mining SPDR (XME) breaking trend line support with a gap and sharp decline on Wednesday. Notice how the ETF failed near the 50% retracement in September and then formed a lower high in October. Todays breakdown ends the upswing that began in late July and targets a move towards the summer lows.
TREASURIES MAKE BREAKOUT BID IN FLIGHT TO SAFETY... With the Dollar breaking out last week, oil in a clear downtrend and stocks weakening, money is seeking out relative safe-havens like US treasuries. Chart 11 shows the 20+ Year T-Bond ETF (TLT) breaking channel resistance with a surge above 123 on Wednesday. As noted last week, there are two channels at work here. The large channel extending down from the late July high and the smaller channel in October. Todays move broke both channel trend lines. Even though TLT has yet to break the October highs, the bulls clearly have an edge with these channel breakouts. Moreover, treasuries and stocks are negatively correlated, which means an upside breakout in TLT is bearish for the stock market. First support is set at 120. Chart 12 shows the 10-year Treasury Yield ($TNX) failing at resistance and moving sharply lower this month.
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Chart 11
