SMALL-CAPS LEAD THE MARKET LOWER -- INTERNET ETF LEADS TECH SECTOR LOWER -- GOOGLE AND AMAZON SHOW RELATIVE WEAKNESS -- BIOTECHS AND SOLAR STOCKS LEAD MOMENTUM NAMES LOWER -- FINANCE SECTOR MOVES INTO SCTR TOP THREE
SMALL-CAPS LEAD THE MARKET LOWER ... Link for today's video. The Russell 2000 iShares (IWM) and the S&P SmallCap iShares (IJR) are showing relative weakness in September and leading the current correction. There may be some debate on the term "correction" though. The S&P 500 SPDR and Nasdaq 100 ETF hit new highs and remain in long-term uptrends. Any pullback, therefore, would be deemed a correction within a bigger uptrend. IJR and IWM, on the other hand, fell well short of their July highs and only retraced 62% of the prior decline. With a down turn over the last two weeks, lower highs formed in IJR and IWM. This means it is possible that bigger downtrends are beginning. Chart 1 shows IJR peaking on September 3rd and falling around 3% from high to low this month. The August uptrend has reversed and the ETF is in a downtrend for September. Adding a couple of trend lines reveals that this September decline could turn out to be a falling flag, which is a bullish continuation pattern. For now, however, I am turning negative on IJR because of the lower high and September downtrend. A close above last Thursday's high (100.6) would break flag resistance and reverse the September downtrend. Chart 2 shows IWM with similar characteristics.
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Chart 1
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Chart 2
INTERNET ETF LEADS TECH SECTOR LOWER... Internet stocks came under selling pressure on Monday as the Internet ETF (FDN) moved to the lower Bollinger Band. Chart 3 shows FDN with a triangle breakout and BandWidth expansion the second week of August. After moving above 62 in late August, the ETF stalled the last few weeks the Bollinger Bands narrowed. Notice how the BandWidth indicator dipped back to the August lows. This is a critical moment for the uptrend that began with the late May breakout. First, notice how FDN broke down in March and prices hugged the lower band during the downtrend. FDN reversed with a breakout in late May and prices exceeded the upper band on several occasions over the last few months. The lower band is currently around 61 and a break below this band would show strong selling pressure. This in turn could signal the start of a downtrend for the Internet ETF.
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Chart 3
GOOGLE AND AMAZON SHOW RELATIVE WEAKNESS ... I am just going to highlight two internet stocks as examples today. Note, however, that the whole group is weak today with losses hitting EBAY, GRPN, CTRP, PCLN, TRIP, AWAY, OSTK, YELP, CRM, and SSTK. Chart 4 shows Google (GOOG) breaking the wedge trend line with a sharp decline the last five days. Also notice that Google did not exceed its July high and shows relative weakness. The indicator window shows the price relative (GOOGL:SPY ratio) peaking in late July and moving lower the last few weeks.
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Chart 4
Chart 5 shows Amazon (AMZN) moving above 340, but falling well short of its July high and reversing the upswing. The stock broke the early August trend line last week and broke support at 330. The indicator window shows the price relative peaking in late July and moving lower the last eight weeks.
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Chart 5
BIOTECHS AND SOLAR STOCKS LEAD MOMENTUM NAMES LOWER... In addition to internet stocks, we are seeing strong selling pressure in momentum groups overall. These groups include big data, cyber security, Tesla, 3D printing, biotech and solar. Chart 6 shows the Biotech SPDR (XBI) peaking in late August and oscillating around 160 the last three weeks. The ETF was down over 3% at midday on Monday and testing support from last week's low. The indicator window shows RSI with a large bearish divergence and break below 50. Note that I am NOT a big fan of divergences because most fail to foreshadow a reversal. Having said that, notice that RSI became overbought in late June and early July, but did not become overbought in late August. This shows waning upside momentum. The subsequent break below 50 is the first sign that downside momentum is picking up.
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Chart 6
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Chart 7
Chart 7 shows the Solar Energy ETF (TAN) with a 4% decline around midday. The ETF formed a long black candlestick last week and hit resistance in the 45-46 area again. Notice that the 62% retracement is also in this area. Should TAN close below last week's low, the short-term trend would reverse because of the minor support break. Also notice that MACD would break its signal line on a close near current levels.
FINANCE SECTOR MOVES INTO SCTR TOP THREE ... Chip and I did a ChartCon presentation featuring some "hidden gems" on StockCharts. This next segment was not part of the presentation, but I think it qualifies as a hidden gem. Chart 8 shows a Sector Market Carpet with the SCTR setting. Note that I clicked the arrow at the top left to focus on the sectors as a whole. The SCTR values reflect the average SCTR score for all stocks in the sector. This provides a unique way to measure relative strength. The sectors with the highest SCTR average show relative strength, while the sectors with the lowest SCTR average show relative weakness. If using a "live" Market Carpet", there will be a table on the right showing the top four and bottom four. Chartists can hover over the Market Carpet to see the values for each sector. I have added these values to the image. Overall, notice that healthcare, technology and finance are the strongest, by far. Energy is the weakest sector by far with an average SCTR value below 40. Materials and industrials are also showing relative weakness.
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Chart 8
GOLDMAN, MORGAN AND NASDAQ LEAD FINANCE SECTOR... Even though stocks are under selling pressure today, the finance sector is holding up relatively well and merits our attention. With that in mind, let's look at individual SCTR values in the sector. First, click on the arrow at the top left to show all stocks in the sector. Second, double click on any box in the finance sector to isolate this sector. Third, hover over the carpet and right click to select "square mode" and "view ticker". The dark green squares show the finance sector stocks with the highest SCTR values (relative strength). The dark red squares show the stocks with the lowest SCTR values (relative weakness). Notice that Morgan Stanley (MS), Charles Schwab (SCHW), CME Group (CME), Invesco (IVZ), Goldman Sachs (GS) and Nasdaq OMX (NDAG) are showing dark green and relative strength.
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Chart 9
INSURANCE STOCKS MAKE BIG SCTR GAINS... Chart 10 shows this same Sector SCTR Market Carpet with the "delta" icon selected. Notice that this icon (top left) is shaded, which means the SCTR carpet is in "change mode". The dark green squares now shows the stocks with the biggest upside change in their SCTR. The red squares show the stocks with the biggest downside change. This is a great way to find the movers and the shakers. Today, notice that several insurance stocks are showing big gains in their SCTR value. These include ALL, CB, PGR and TRV.
