QQQ SURGES TO YET ANOTHER NEW HIGH -- AMAZON AND MICROSOFT GET ON THE SAME PAGE -- CONSUMER DISCRETIONARY AND RETAIL SPDRS SCORE NEW HIGHS -- FINANCE SPDR STALLS NEAR RESISTANCE -- CHINA AND JAPAN SHOW RELATIVE AND ABSOLUTE WEAKNESS
QQQ SURGES TO YET ANOTHER NEW HIGH... Link for today's video. The Nasdaq 100 ETF (QQQ) stuttered with a dip on Wednesday, but got its mojo back on Thursday and Friday with a move to new highs. Weakness in semiconductor and networking stocks weighed on tech stocks the last three days, but strength in Apple, Google, Amazon and Microsoft powered the QQQ higher over the last three weeks. These four stocks account for around 31% of the ETF. Chart 1 shows QQQ finding support near broken resistance with a hammer around 77. The stock then gapped up and broke to new highs in mid October. With today's move above 83, QQQ is now up over 7% in twelve days. It may be short-term overbought because RSI moved above 70, but it is by no means weak. In fact, notice that RSI exceeded 70 at least five times since mid July. Overbought readings are more prevalent in strong uptrends. Admittedly, QQQ is overbought and ripe for a rest or pullback. Broken resistance in the 80 area turns into the first support zone to watch.
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Chart 1
AMAZON AND MICROSOFT GET ON THE SAME PAGE... As companies, Amazon and Microsoft could not be any different. Fundamentally, they are on opposite ends of the spectrum. Amazon is the great-expectations play, while Microsoft is more a value play. As stocks, they also act different for the most part. Today they are in sync with big moves and 52-week highs. Chart 2 shows Amazon (AMZN) gapping higher and surging around 10% on Friday. This is the second gap in as many weeks. Broken resistance and the first gap combine to mark support in the 310-320 area. Chart 3 shows Microsoft (MSFT) with a pretty choppy range the last six months. The stock bounced off range support in early September and never looked back. Today, MSFT exceeded its summer high with a gap and 7+ percent surge. The September trend line and mid October low mark support at 33.5.
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Chart 2
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Chart 3
CONSUMER DISCRETIONARY AND RETAIL SPDRS SCORE NEW HIGHS... Eight of the nine sector SPDRs recorded new 52-week highs this past week. The Utilities SPDR (XLU) is the only sector that fell short, but the ETF did surge the last two weeks and broke its September high. More importantly for the broader stock market, the four offensive sectors recorded new highs. These include that Consumer Discretionary SPDR (XLY), the Finance SPDR (XLF), the Technology SPDR (XLK) and the Industrials SPDR (XLI). New highs occur in long-term uptrends, not downtrends. Even though chartists can argue that the stock market is short-term overbought, there can be little argument regarding the overall trend.
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Chart 4
Chart 4 shows the Consumer Discretionary SPDR forming a higher low in early October and surging to new highs the last twelve days. Broken resistance and the consolidation zone mark first support in the 60-61 area. A throw back to this area may offer a second chance to partake in the uptrend. The indicator window shows the price relative turning up this week. Note that the consumer discretionary sector features housing, retail, restaurants and autos. Economic conditions cannot be that bad if the most economically sensitive sector is hitting a new high. Chart 5 shows the Retail SPDR (XRT) breaking above its August-September highs and this breakout zone turns first support. Like XLF below, XRT is stalling now and a move back below this week's low would jeopardize the breakout.
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Chart 5
FINANCE SPDR STALLS NEAR RESISTANCE... The Finance SPDR (XLF) broke triangle resistance with a surge above 20.75, but the ETF has since stalled and failed to continue higher. Even though the breakout is still holding, I am concerned because XLF gapped down on Wednesday and this gap is holding. Chart 6 shows the ETF consolidating after the gap the last three days. A break below this week's low would signal a continuation and be short-term bearish. At the very least, it would reverse the upswing that started with the harami and gap. At the very most, it would signal a failed triangle breakout and put this key sector back on the defensive. The indicator window shows the price relative breaking out as XLF started outperforming in mid October. This breakout is also under threat as the price relative turned down the last six days.
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Chart 6
CHINA AND JAPAN SHOW RELATIVE AND ABSOLUTE WEAKNESS... Global equities are largely higher over the past month, but the Shanghai Composite, Hang Seng Index and Nikkei 225 stand out because they are down. PerfChart 7 shows the performance for ten country indices over the last 21 trading days (24-Sep to 24-Oct). The S&P 500, German Dax ($DAX) and S&P/TSX ($TSX) are leading with gains exceeding 3%. These three indices, along with the Australian All Ords ($AORD), also recorded 52-week highs this past week and are in long-term uptrends. In contrast, the Shanghai Composite, Hang Seng Index and Nikkei 225 did not exceed their May highs and actually declined this past month. Relative and absolute weakness in not a good sign for Far Easter equities.
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Chart 7
SHANGHAI COMPOSITE BREAKS KEY LEVEL ... With a sharp decline the last four days, the Shanghai Composite ($SSEC) broke support and started to underperform the S&P 500. The Chinese stock market is an important part of the emerging markets equation and emerging markets are important to the metals and mining industry. Chart 8 shows the index advancing to the 62% retracement in mid September and then trading flat for several weeks. Notice that the index recorded a 52-week low in June and one could argue for a long-term downtrend based on this low. The 3-4 month counter trend rally, while impressive on a percentage basis, simply recouped around 65% of the February-June decline. I was willing to be medium-term bullish as long as the 3-4 month uptrend held. With this week's decline, the index broke support and reversed the medium-term uptrend. We could now be looking at a continuation of the bigger downtrend and test of the summer lows. The indicator window shows the price relative peaking in mid September and breaking support in October. Chinese stocks are starting to underperform US stocks and show relative weakness.
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Chart 8
NIKKEI FAILS AT RESISTANCE FOR THIRD TIME... The Nikkei 225 ($NIKK) appeared to break triangle resistance and signal a resumption of the bigger uptrend, but the index failed to clear 15000 and fell back over the last three days. Chart 9 shows the index falling back below 14000 in early October and then making another run at 15000 last week. This run also failed as the index fell over 4% the last three days. This is an end-of-day (EOD) chart so I manually drew today's price bar (Friday close = 14088). Even though resistance looks stiff, the triangle breakout is not a complete failure just yet. The lower trend line and early October low mark key support, and a break below this level would be bearish. The indicator window shows the Yen Index ($XJY) edging higher the last six days. Yen strength is weighing on the Nikkei 225 this week and an upside breakout in the Yen would be quite negative for Japanese exporters.
