QQQ BREAKS SMALL WEDGE, IWM EXTENDS CORRECTION, CONSUMER DISCRETIONARY AND HEALTHCARE WEIGH, ENERGY GETS OVERSOLD BOUNCE
QQQ BREAKS SMALL WEDGE... Weakness in techs and small-caps weighed on the market Thursday. Chart 1 shows the Nasdaq 100 ETF (QQQ) falling over 1% with a sharp decline late Thursday afternoon. The ETF is still in an uptrend overall, but today's decline broke wedge support for a short-term bearish signal. Notice how the ETF fell sharply in late July, bounced with a wedge into early August and then broke wedge support today. This signals a continuation of the late July decline and should be considered short-term bearish. Even with this short-term break, the bigger trend is still up because QQQ remains well above key support in the 105-106 area.
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Chart 1
IWM EXTENDS CORRECTION... Chart 2 shows the Russell 2000 iShares (IWM) bouncing above 122 in late July, stalling below 124 and turning down today. This marks another lower high and the trend since late June is down, but I would argue that this is a correction within a bigger uptrend. IWM hit a new high less than two months ago and is around 6% below this high. Nevertheless, the red lines mark a correction with resistance set at 125. A breakout here is needed to end the correction and signal a resumption of the uptrend.
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Chart 2
CONSUMER DISCRETIONARY AND HEALTHCARE WEIGH... The consumer discretionary and healthcare sectors have been leading the market for months, but these two weakened on Thursday and led the way lower. Also note that beaten down energy, materials and utilities sectors are bouncing today. Chart 3 shows the Equal-Weight Consumer Discretionary ETF (RCD) falling to its support zone for an important test. A follow through break below support would be bearish for this key sector. The indicator window shows the SCTR turning down over the last two weeks. Chart 4 shows the HealthCare SPDR (XLV) bouncing back to its July high and then falling sharply today. The overall trend is still up with key support marked in the 73-74 area.
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Chart 3
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Chart 4
ENERGY GETS OVERSOLD BOUNCE... I am not one to pick bottoms and use bullish divergences in momentum oscillators, but there are some interesting happenings in energy today. Note that the Energy SPDR (XLE) is firming today with a bullish candlestick pattern over the last two days. Depending on the close, XLE will likely form a bullish engulfing or a piercing pattern. A close above yesterday's open would forge a bullish engulfing. A piercing pattern will form if the ETF closes above the mid point of Wednesday's open-close range. Should a bullish candlestick reversal take hold, a move above 69 would confirm this reversal and argue for an oversold bounce. That's about all I would look for at this stage. The indicator window shows RSI with a higher low and small bullish divergence taking shape. Chart 6 shows the Oil & Gas Equip & Services SPDR (XES) and MACD forming a small bullish divergence.
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Chart 5
