QQQ BREADTH LAGS, MEDIUM-TERM BREADTH WEAKENS, 55% OF MARKET REMAINS BULLISH, XLY AND XLV LEAD OVERSOLD BOUNCES, GOLD BREAKS TO NEW LOWS, XME AND XES PLUNGE TO NEW LOWS, BREADTH INDICATOR DETAILS AND CHART LINKS
QQQ HITS NEW HIGH, BUT BREADTH LAGS... After a nice vacation and some time away from the market, I am going to start of with the indicator tables for the major index ETFs and sectors to get a broad overview. Before looking at these tables, let's look at an individual chart with the indicators. Chart 1 shows the Nasdaq 100 ETF (QQQ) with the price-trend indicators (EMAs) and six breadth indicators at work. The green arrows mark bullish signals and the red arrows mark bearish signals. The signals are explained in detail at the end of this commentary. Note that I am not using the centerlines to generate signals. For example, instead of using the 50% line for the percentage of stocks above the 200-day EMA, I set a bullish threshold at 60% and a bearish threshold at 40%. This reduces whipsaws and helps define the overall bias.
On the chart below, the 10-day EMA (pink) is above the 100-day EMA (blue) and this is bullish for price action, but the breadth indicators are mixed and not confirming last week's new high. The two long-term indicators are bullish. The Nasdaq 100 %Above 200-day EMA (!GT200NDX) crossed above 60% in October 2014 and has yet to turn bearish. Nasdaq 100 High-Low Percent ($NDXHLP) turned bearish with a move below -5% in late June, but rebounded with a move above +5% last week. I suspect that weakness in this indicator stems from the Semiconductor SPDR (XSD), which broke its March-April lows in early July.
(click to view a live version of this chart)
Chart 1
Weakness in Nasdaq 100 breadth can be seen with the 60-day EMAs of AD Percent and AD Volume Percent. Both turned bearish on June 8th with moves below -3% and have yet to counter this signal with a move above +3%. The Nasdaq 100 %Above 50-day EMA (!GT50NDX), however, remains bullish because it has yet to move below 30%. All told, I count four bullish indicators and two bearish indicators right now, and this is net bullish. The last indicator is the Nasdaq 100 %Above 20-day EMA (!GT20NDX), which is used to identify short-term overbought and oversold conditions. Notice that this indicator was short-term oversold in late June and early July when it dipped below 30% twice. Chartists should look for short-term oversold conditions when the other indicators are net bullish and short-term overbought conditions when the other indicators are net bearish.
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Timeline for Market Message Video:
Total Time: 20 minutes and 57 seconds
00:44 to 05:20 - QQQ Hits New High, But Breadth Lags
05:21 to 07:22 - Medium-term Breadth Weakens
07:23 to 11:31 - 55% of Market Remains Bullish
11:32 to 15:39 - XLY and XLV Lead Oversold Bounces
15:40 to 18:31 - Gold Breaks to New Lows (plus Silver and Palladium)
18:32 to 20:37 - XME and XES Plunge to New Lows
Link for today's video.
MEDIUM-TERM BREADTH WEAKENS... Chart 2 shows a table with the trend and breadth indicators for the S&P 500 SPDR (SPY), S&P MidCap SPDR (MDY), S&P SmallCap iShares (IJR) and Nasdaq 100 ETF (QQQ). It is a simple table created in Excel. Indicator details can be found further down in the commentary. The left side of the table contains the long-term indicators and the right side has the medium-term indicators. The left half is green and this supports a long-term uptrend for the stock market. The right half is more red than green and this points to underlying weakness in the market medium-term. Medium-term weakness and long-term strength suggests that a correction is currently underway for the broader stock market. I would not turn long-term bearish until the majority of the indicators on the left half turn red. This means the %Above the 200-day EMA indicators need to break below 40% and High-Low Percent indicators need to break below -5%. Note that this table did not look so green last week. The blue ovals mark the five indicators that turned bullish last week.
Chart 2
55% OF MARKET REMAINS BULLISH... Chart 3 shows a table with the trend and bearish indicators for the nine sectors. Notice that healthcare, consumer discretionary and finance are all green and these are the leaders right now. Healthcare has been net bullish since October 24th and consumer discretionary has been net bullish since June 23rd. The consumer staples sector is net bullish with five indicators in green and just one in red. Taken as a whole, these four sectors account for over 50% of the stock market. Also note that their respective SPDRs and equal-weight ETFs hit new highs last week. This means four of the nine sector SPDRs hit new highs and four of the nine equal-weight sector ETFs hit new highs. I would not expect a bear market with some 55% of the stock market showing strength right now.
Chart 3
The bottom third of the table shows the lagging sectors: utilities, materials and energy. The energy sector has been net bearish since late May. The industrials sector is also weak and to be avoided for now. The technology sector is net bearish, but the two long-term breadth indicators are still bullish (percent above 200-day EMA and High-Low Percent). These are the two indicators to watch going forward because the technology sector accounts for over 20% of the S&P 500. Bearish signals from these two indicators would weigh on the broader market. Note that I added telecom to the technology sector because the major telcos are part of XLK (VZ, T). The blue ovals mark the indicators that changed last week.
XLY AND XLV LEAD OVERSOLD BOUNCES... Chart 4 shows the Consumer Discretionary SPDR (XLY) with the Equal-Weight Consumer Discretionary ETF (RCD) and the same breadth indicators. All six indicators have been bullish since June 23rd, which is when XLY %Above 50-day EMA (!GT50XLY) broke above 70%. I just want to call your attention to the XLY %Above 20-day EMA (!GT20XLY) because it became oversold in late June and early July. I pointed this June reading out in the Market Message on June 29th. Looking for short-term oversold conditions in a long-term uptrend is a good way to partake in an uptrend. Chart 5 shows the HealthCare SPDR (XLV) with a similar setup.
(click to view a live version of this chart)
Chart 4
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Chart 5
GOLD BREAKS TO NEW LOWS... Gold extended its downtrend on Monday with a sharp move to new lows. New lows should not come as a surprise because the trend was already down and this is just a continuation move. Chart 6 shows the Spot Gold ($GOLD) with a series of lower highs extending back to early 2014. Moreover, I featured gold in the Market Message on June 5th with a bearish wedge taking shape. This wedge marked a counter-trend bounce after the January-February decline and the wedge break signaled a continuation of this decline. The wedge highs mark first resistance and the 1230 area. Chart 7 shows Spot Silver ($SILVER) breaking down in June as well. Chart 8 shows Spot Palladium ($PALL) breaking down in June and plunging to fresh 52-week lows.
(click to view a live version of this chart)
Chart 6
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Chart 7
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Chart 8
XME AND XES PLUNGE TO NEW LOWS... Commodities are down pretty much across the board on Monday with the Commodity Tracking ETF (DBC), Base Metals ETF (DBB), Agriculture ETF (DBA) and Spot Crude ($WTIC) all sown. Weakness in metals pushed the Metals & Mining SPDR (XME) to new lows and weakness in oil pushed the Oil & Gas Equip & Services SPDR (XES) to new lows. Chart 9 shows XME breaking down in May, working its way lower in June and falling off a cliff in July. Notice that the StockCharts Technical Rank (SCTR) has not been above 10 since November. The ETF is surely oversold after such a sharp decline, but the downtrend dominates and the falling knife is pointed down. Chart 10 shows XES breaking support in mid June as the SCTR moved back below 10. This breakdown negated the double bottom breakout and warned of further weakness. The takeaways here: bottom picking is dangerous and a move below 10 in the SCTR is a clear warning.
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Chart 9
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Chart 10
TREND-BREADTH INDICATOR DETAILS... Price Trend: Trend is bullish when 10-day EMA is above 100-day EMA and bearish when 10-day EMA is below 100-day EMA. For the sectors, the "net trend" is bullish when the 10-day EMAs for both sector ETFs cross above their 100-day EMAs and remains bullish until both cross below their 100-day EMAs, which triggers a bearish signal.
Percent above 200-day EMA: Cross above 60% is bullish and cross below 40% is bearish.
High-Low Percent: Cross above +5% is bullish and cross below -5% is bearish.
60-day EMA of AD Percent: Cross above +3% is bullish and cross below -3% is bearish.
60-day EMA of AD Volume Percent: Cross above +3% is bullish and cross below -3% is bearish.
Percent above 50-day EMA: Cross above 70% is bullish and cross below 30% is bearish.
Percent above 20-day EMA: Cross below 30% is oversold and cross above 70% is overbought.
BREADTH CHART LINKS... S&P 500 Breadth Chart
S&P MidCap 400 Breadth Chart
S&P SmallCap 600 Breadth Chart
Nasdaq 100 Breadth Chart
Consumer Discretionary Sector Breadth Chart
Finance Sector Breadth Chart
Technology Sector Breadth Chart
Industrials Sector Breadth Chart
Consumer staples Sector Breadth Chart
Healthcare Sector Breadth Chart
Utilities Sector Breadth Chart
Materials Sector Breadth Chart
Energy Sector Breadth Chart
