DOW DEATH CROSS, S&P 500 BREAKS KEY SMA, FINANCE LEADS LOWER, GOLDMAN AND MORGAN WEIGH ON BROKER-DEALERS ETF, BONDS EXTEND SURGE AS UTILITIES GAIN, HANG SENG LEADS CHINESE STOCKS LOWER, DAX LEADS EURO STOCKS LOWER
DOW GETS DEATH CROSS AS S&P 500 BREAKS 200-DAY... The major index ETFs were down in early trading on Wednesday with the finance, technology and consumer discretionary sectors leading the way lower. It is quite negative to see these key sectors leading on the way down. The Dow Industrials got the death cross as its 50-day SMA crossed below the 200-day SMA. Despite this negative development, note that we have yet to see death crosses in the S&P 500, S&P MidCap 400, S&P Small-Cap 600, S&P 500 Equal-Weight Index, Nasdaq or Nasdaq 100. There is a death cross at work for the NY Composite Index.
Chart 1 shows the Dow falling over 5% the last three weeks and becoming short-term oversold. The senior Average broke support on the way down and formed lower highs in June and July. Throw in a death cross and the overall trend for the Dow is clearly down. Chart 2 shows the S&P 500 breaking below the 50-day and 200-day SMAs with a sharp decline the last two days. The index is, however, nearing a big support zone from the March-July lows. A major test is at hand for this key market benchmark.
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Chart 1
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Chart 2
FINANCE SECTOR LEADS STOCKS LOWER... Turning back to the finance sector, chart 3 shows the Finance SPDR (XLF) within an uptrend since January and with new highs in July. There are, however, some short-term negatives on this chart. First, XLF formed a rising flag into early August and broke flag support with a sharp decline today. Second, Aroon Down surged above Aroon Up and hit 100 for a bearish signal. These short-term bearish developments are not enough to affect the bigger uptrend yet and I am marking key support in the 24.10-24.25 area. Chart 4 shows the Technology SPDR (XLK) breaking pennant support for a short-term bearish signal. The March-July lows mark long-term support in the 41 area.
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Chart 3
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Chart 4
GOLDMAN AND MORGAN WEIGH ON BROKER-DEALERS ETF... The Broker-Dealer iShares (IAI) is getting slammed with big declines in Goldman Sachs (GS) and Morgan Stanley (MS). According to the iShares website (www.ishares.com), these two account for over 20% of the ETF. Chart 5 shows IAI with an Adam & Eve Double Top, a pattern that was identified by Thomas Bulkowski. It is reversed because the rounded Eve peak is first and the pointed Adam peak to is second. Nevertheless, it is a double top and it is confirmed with the support break. The indicator window shows the SCTR plunging to its lowest level since early February. Chart 6 shows Goldman Sachs breaking support over the last two days. Chart 7 shows Morgan Stanley breaking support to confirm a double top. In a separate, but related group, chart 8 shows the Regional Bank SPDR (KRE) breaking below its July low today.
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Chart 5
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Chart 6
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Chart 7
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Chart 8
BONDS EXTEND SURGE AND UTILITIES GAIN... Chart 9 shows the 20+ YR T-Bond ETF (TLT) extending its advance and gaining over 9% since late June. TLT broke resistance in the 122-124 area over the last few days and all three PPOs are positive. The rise in Treasuries means the 10-YR Treasury Yield ($TNX) is falling and this is boosting the Utilities SPDR (XLU). Chart 10 shows XLU challenging resistance from the March-April highs. The trend since late June is up with a series of higher highs and higher lows. The lower trend line of the rising channel and early August low mark first support in the 43-43.5 area. The indicator window shows the positive correlation between XLU and TLT.
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Chart 9
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Chart 10
HANG SENG LEADS CHINESE STOCKS LOWER... Asian stocks were mostly lower on Wednesday and those with close ties to China are the weakest overall. Let's first look at the Shanghai Composite ($SSEC) and Hang Seng Composite ($HSI), and then a PerfChart for the region. Chart 11 shows the Shanghai Composite with a sharp decline and support breaks in June-July. This looks like a trend reversing event. The index bounced back to the broken support zone and this area turned resistance around 4200 (red zone). The Shanghai Composite remains volatile, but it remains below the support break and I would stay bearish until it closes back above 4200. Chart 12 shows the Hang Seng Composite falling over 2% today and leading the Shanghai Composite lower.
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Chart 11
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Chart 12
PerfChart 13 shows three month performance for ten Asian stock indices. Notice that the Shanghai Composite, Hang Seng Composite, Taiwan Weighted ($TWII) and Singapore Times ($STI) are the four weakest. Obviously, Taiwan and Singapore have the closest ties to China. Elsewhere, the Nikkei 225 ($NIKK) is up and performing the best. The Bombay Sensex 30 Index ($BSE) and New Zealand 50 ($NZ50) are also up and showing some strength. Note that this PerfChart is based on Tuesday's close.
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Chart 13
GERMAN DAX INDEX LEADS EURO STOCKS LOWER... European stocks attempted a breakout after Greece struck a deal with EU officials, but this breakout quickly failed as Euro stocks moved lower in mid July and early August. Chart 14 shows the Eurotop 100 Index ($EUR) with a wedge breakout in mid July and move above the late June high. The index fell back below the breakout in late July, but bounced back to 3200 to keep it alive in early August. This bounce failed to exceed the mid July high and the index is back down near 3050 on Wednesday. At this point, I would call it a failed breakout and consider the 3-4 month trend down. The 62% retracement area marks the next support zone around 2850. The indicator window shows the three Percentage Price Oscillators (PPO). The short-term PPO (5,30,1) moved into negative territory and it would not take much to push the medium-term PPO (10,60,1) below zero too. Chart 15 shows the German DAX Index ($DAX) with a failed breakout, lower high and sharp decline on Wednesday (red bar).
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Chart 14
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Chart 15
PerfChart 16 shows three month performance for the S&P 500 and nine European indices. Note that these indices are priced in their local currencies so there is no currency affect at work here. Also note that $DAX is a total-return index that includes dividends. The others, as far as I know, are not. Even with the dividends, the German DAX Index is still the third worst performing index over the last three months. The FTSE Index ($FTSE) and Portuguese Index ($PSE are the weakest. The Swiss SMI Index ($SMI) is the strongest of the group.
