QQQ FORMS SMALL FLAG AFTER GAP -- NASDAQ 100 AD LINE BREAKS SHORT-TERM SUPPORT -- APPLE, MICROSOFT AND GOOGLE TELL THE TALE FOR QQQ -- OIL BACKS OFF RESISTANCE AS STOCK PERFORMANCE WEIGHS -- TECHNICAL RANK DECLINES FOR XLE AND OIH
QQQ FORMS SMALL FLAG AFTER GAP... Link for today's video. The Nasdaq 100 ETF (QQQ) remains in an uptrend overall, but the short-term trend is down as the gap holds for four days (today is the fifth). Chart 1 shows QQQ within an uptrend overall as prices advanced from the 64 area in late December to the 77 area in early August. Since hitting a new high earlier this month, the ETF gapped down last week and this gap is holding. The flat consolidation looks like a small flag, which is a bearish continuation pattern. A break below flag support would signal a continuation lower and open the door to a deeper correction. Broken resistance in the 73 area marks next support.
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Chart 1
Chartists analyzing a major index ETF or a sector SPDR have an array of tools available at StockCharts. First, chartists can check the StockCharts Technical Rank (SCTR) to measure relative performance. The SCTR value show technical performance relative to other unleveraged and non-inverse ETFs. As the indicator window shows, the SCTR for QQQ broke above 50 in late April and moved higher the last few months. The recent move above 90 means QQQ is in the 90th percentile for technical performance. Put another way, it is in the top 10 percent for performance. Not shabby. You can read more about the SCTR in our ChartSchool.
NASDAQ 100 AD LINE BREAKS SHORT-TERM SUPPORT... StockCharts users can also analyze QQQ specific breadth indicators for deeper insights. In particular, StockCharts calculates and publishes AD Percent and AD Volume Percent for the Nasdaq 100 ($NDX). AD Percent is advances less declines divided by total issues. AD Volume Percent is advancing volume less declining volume divided by total volume. With these indicators, chartists can create the AD Line or a breadth oscillator using moving average. See our index documentation for a list of breadth symbols.
Chart 2 shows the Nasdaq 100 AD Line ($NDXADP) breaking support from the late July low to start a short-term downtrend. The long-term trend is up with the blue trend line marking next support.
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Chart 2
Chart 3 shows the Nasdaq 100 AD Volume Line ($NDXUDP) holding support near its late July low and bouncing on Tuesday. The long-term trend is up, but I am concerned with a large bearish divergence in the 125-day EMA of AD Volume Percent. Daily AD Volume Percent fluctuates between -100% and +100. Applying a 125-day EMA turns this raw indicator into a momentum oscillator of sorts. The 125-day EMA of AD Volume Percent moved to new highs with the market in May, but formed a lower high in early August. Breadth momentum has not turned outright bearish just yet because the indicator is still positive overall. A move into negative territory would be bearish.
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Chart 3
APPLE, MICROSOFT AND GOOGLE TELL THE TALE FOR QQQ... Chartists interested in QQQ should also watch Apple (13.57%), Microsoft (7.62%) and Google (6.77%) because these three account for over 25% of the ETF. This logic also applies to the Sector SPDRs. Chartists trading or investing in these should also analyze the top 3 to 5 stocks because they often account for over 25% of the total weighting. Apple has clearly been carrying the load lately with a 30% gain since late June. Chart 4 shows Apple finding support in the 380-390 area in late June and breaking resistance from the March-May highs as it surged above 500. Now what? Well, the stock has gotten a little ahead of itself (overbought) and looks ripe for a corrective period. Short-term, a shooting start formed on Monday and a bearish engulfing on Tuesday. These are bearish candlestick reversal patterns that could foreshadow that correction. As far as targets, broken resistance turns support in the 450-460 area. A move back to this area would also mark a 38 to 50% retracement. The indicator window shows RSI breaking the June trend line and working its way higher the last seven weeks. The green trend line marks upswing support just below 70.
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Chart 4
While Apple is in a clear uptrend, Microsoft is in a downtrend after the large gap down in mid July. Chart 5 shows Mister Softy breaking support with a plunge below 32.50 on July 19th. This gap is holding as the support break and gap zone turn resistance. MSFT edged higher the last few weeks, but formed a rising flag, which is a bearish continuation pattern. A break below flag support would signal a continuation lower. The indicator window shows CCI holding positive from March to mid June as the uptrend extended. The indicator got whipsawed in mid July, but seems to have settled in negative territory over the last few weeks. Momentum favors the bears as long as CCI remains negative.
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Chart 5
Google (GOOG) is the third gorilla in the room. While the chart is not as negative as Microsoft, momentum favors the downside as MACD trends lower. Chart 6 shows GOOG peaking twice in the 920-930 area, and then declining to the June lows. The five week trend is down and MACD confirms weakness with a move into negative territory. A trend in motion stays in motion so I would expect further weakness until MACD breaks the May trend line and Google breaks the mid July trend line.
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Chart 6
OIL BACKS OFF RESISTANCE AS STOCK PERFORMANCE WEIGHS... After a sharp move higher in early July, oil hit resistance in the 108 area and fell back this week. Chart 7 shows Spot Light Crude ($WTIC) breaking resistance in the 98 area, surging to 108 and then correcting with a falling flag. Oil formed lower highs the last five weeks as the flag extended. Even though falling flags are bullish continuation patterns, resistance in the 108 area is looking formidable. Moreover, recent weakness in the stock market could weigh on oil. The indicator window shows the Correlation Coefficient ($SPX, $WTIC) in positive territory for most of the last six months. The indicator dipped into negative territory over the last few days as oil held up better than the S&P 500. This may be changing as oil turns down at resistance. Broken resistance in the 96-98 area marks the next support zone. Chart 8 shows the US Oil Fund (USO) for reference.
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Chart 7
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Chart 8
TECHNICAL RANK DECLINES FOR XLE AND OIH... Even though oil is trading well above $100 per barrel and in an uptrend, the Energy SPDR (XLE) and the Oil Service HOLDRS peaked in late July and corrected the last 4-5 weeks. This is, perhaps, a sign that $105-108 oil is unsustainable. Note that oil was down around 50 cents in early trading on Wednesday. Chart 9 shows XLE within an uptrend with a rising channel taking shape. Buying pressure is diminishing because XLE barely exceeded its May high. In fact, it looks like XLE hit resistance near the May high (yellow area). The ETF pulled back rather sharply in August and is starting to show relative weakness. Notice that the StockCharts Technical Rank (SCTR) fell from the low 70s to the low 50s. The relative performance cup is still half full with the SCTR above 50. A move below 50, however, would suggest technical weakness and be negative for XLE. Short-term, chartists can watch trend line resistance at 82 for a breakout to reverse the August slide. Chart 10 shows the Oil Service HOLDRS (OIH) breaking pennant support this week.
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Chart 9
