AVERAGE STOCK CORRECTING, XLK ISLAND-PENNANT, RYT BEAR CHANNEL, XSD FIRMS AS IGN BREAKS WEDGE, ITB HOLDS TREND AMID DISPERSION, XRT TESTS SPRING LOWS, CHARTLIST, SUMMARY AND MARKETCARPET DEMO, VIDEO TIMELINE
AVERAGE STOCK IS CORRECTING... Link for today's video. As its names suggest, the Equal-Weight S&P 500 ETF (RSP) tells us what is happening to the average stock in the S&P 500. This is opposed to the S&P 500 SPDR, which is weighted by market cap and has a large-cap bias. The average stock in the S&P 500 is currently in corrective mode. Chart 1 shows RSP hitting a new 52-week high in May and then correcting with a series of lower lows and lower highs the last three months (red trend lines). I am assuming this is a correction because the ETF is still less than 5% from its high. Moreover, the pattern looks corrective. Falling channels, falling flags and falling wedges are typical for corrections within bigger uptrend. It is hard to estimate how far this correction will extend, but we can pick the spot where it will end. The July-August highs mark a resistance zone in the 81-81.5 area. A close above 81.5 is needed to end the correction and signal a resumption of the bigger uptrend.
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Chart 1
Chartists can consider downside targets as long as the correction is in play. The 38% retracement marks one target in the 77.60 area and the 50% retracement marks another target in the 76 area, which is confirmed by the December-January lows. The indicator window shows the PPO (10,60,1) turning negative in late June and staying negative. The PPO (20,120,1) turned negative in late July. Thus, these two indicators confirm the three month downtrend, and need to turn positive to get the uptrend back on track. Chart 2 shows the S&P MidCap SPDR (MDY) within a correction and with resistance in the 275-277.5 area.
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Chart 2
TECH SPDR FORMS ISLAND-PENNANT AS RYT CHANNELS... Chart 3 shows the Technology SPDR (XLK) within a rising channel since December. I am not drawing these channel trend lines to mark support and resistance. Instead, I am just using them to define the overall trajectory of prices, and that trajectory remains up. There are, however, some short-term bearish developments within this channel. Notice that XLK gapped down on 22-July and formed an island reversal (red oval). The gap is holding as the ETF consolidates with a pennant the last two weeks. Pennants are continuation patterns that are dependent on the prior move for their bias. The prior move was down and this makes the pennant a bearish continuation pattern. A break below pennant support would signal a continuation lower and target a support test in the 41 area.
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Chart 3
The indicator window shows three Percentage Price Oscillators (PPO). There is a long-term PPO (20,120,1), a medium-term PPO (10,60,1) and a short-term PPO (5,35,1). 120 days covers around six months, while 60 days covers around three months. The long-term PPO (red) is double the medium-term (green) and the medium-term is double the short-term (gray). These are in one indicator window because I positioned two behind the first PPO. A screen shot of the SharpChart settings is shown below. In any case, we can see the PPO values in the upper left of the indicator window. The short-term PPO is negative and this confirms a short-term downtrend. The medium-term PPO is barely positive and the long-term PPO is positive. Long-term, XLK would turn bearish if it breaks the support zone and PPO (20,120,1) turns negative. Chart 4 shows the Equal-weight Technology ETF (RYT) with a bearish channel taking shape and next support in the 86 area.
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Chart 4
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Chart 5
SEMI ETF FIRMS AS NETWORKING ETF BREAKS WEDGE... Industry group trends are mixed within the technology sector. The Software iShares (IGV), Internet ETF (FDN) and Cloud Computing ETF (SKYY) hit new highs this week and these are the leaders. The Semiconductor SPDR (XSD) is the big laggard weighing on the sector. Chart 6 shows XSD breaking down in early July en route to a 17% decline. The ETF became quite oversold below 80 and firmed the last two weeks. Also notice that XSD is firming near the 50% retracement and December-January lows. I am currently bearish on XSD, but we could see an oversold bounce if the ETF breaks above 81. The indicator window shows all three PPOs in negative territory.
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Chart 6
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Chart 7
Chart 7 shows the Networking iShares (IGN) within an uptrend, but looking vulnerable as a possible lower high takes shape. Overall, the green trend lines define an upward trajectory for prices since December. The red shading shows the last three pullbacks. I am watching IGN closely because a bearish wedge could be formed over the last four weeks. A break below wedge support would forge a lower high and signal a continuation of the prior pullback (this is happening Friday). This in turn would target a test of long-term support in the 27 area.
HOUSING ETF HOLDS TREND AMID PERFORMANCE DISPERSION ... Chart 8 shows the Home Construction iShares (ITB) holding its uptrend with a series of rising lows, which are defined by the green trend line. The advance since May has been rather choppy, but it is still an advance and uptrend. The June-July lows combine to mark a support zone in the 26-27 area. I will stay bullish on ITB until a close below 26. The indicator window shows all three PPOs in positive territory. I am mostly focused on the medium-term (10,60,1) and long-term (20,120,1) PPOs for the overall trend. The real trouble will not start until one or both turn negative.
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Chart 8
I have talked about dispersion in the sectors and industry groups. For example, the consumer discretionary, healthcare, consumer staples and finance sectors are leading with gains over the last five months, while the industrials, materials and energy sectors are lagging with losses. The S&P 500, as a result, is range bound because of this performance dispersion. We are even seeing this within certain industry group ETFs, such as ITB. PerfChart 9 shows the performance for the top nine stocks in ITB over the past month. Notice that four are up, five are down and ITB is basically unchanged (-.36%). The ETF is struggling with direction because of the performance differences, and this suggests that it is a stock pickers market.
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Chart 9
RETAIL SDPR TESTS SPRING LOWS... The Retail SPDR (XRT) is a broad-based ETF with some 100 stocks. It is not weighted by market-cap and this makes it a good barometer for the US retail situation. XRT suggests that retail is flat right now. Chart 10 shows the ETF hitting new highs the first three months of the year and then moving into a trading range the last five months. I am concerned because XRT broke support with a sharp decline in late July, bounced with a rising flag into early August and broke flag support this week. Even though the spring lows are holding, XRT is under selling pressure and looks vulnerable to further weakness. I am marking resistance at 100 and will watch this level for a breakout that would argue for a reassessment.
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Chart 10
XRT SUMMARY AND MARKETCARPET DEMO ... Chartists can also see dispersion by viewing their ChartList as a MarketCarpet. I found the holdings for XRT at SPDRs.com. When viewing in "summary" format, I sorted by the one-month change to find out how many were up and how many were down. Turns about that around 30 stocks were up over 1% and 60 were down over 1%. That's a 2-1 ratio in favor of decliners, and that is negative for XRT. The image below shows the ChartList as a MarketCarpet. There is some green here, but most squares are red or some shade of red, which means they are down over the past month (24 days). I will give a Demo on setting up a ChartList and the different viewing options in today's video.
Chart 11
Chart 12
VIDEO TIMELINE... Link for today's video.
