SPY LOSES MOMENTUM, DIVERGENCE FOR RSP, HOME BUILDERS ETFS HIT NEW HIGHS, NETWORKING ETF BREAKS WEDGE, SEMIS SLIP, FINDING POCKETS OF STRENGTH, BONDS BREAK FREE AS COMMODITIES EXTEND LOSSES, SCTR MAKES BIG MOVE FOR XLY, IYR LEADS IN JULY-AUGUST
S&P 500 SPDR LOSES MOMENTUM... Link for today's video. Before getting too bearish on the S&P 500 SPDR (SPY), chartists should keep in mind that this broad index ETF is trading above its rising 200-day SMA, the 50-day SMA is above the 200-day and the ETF hit a new high in mid July. Thus, the long-term trend is still up for SPY and the S&P 500. At the very least, this tells us that all is not weak in the market and there are some pockets of strength. Chart 1 shows the March-July lows marking long-term support in the 203-204 area. Look for a break below this level for enough technical damage to reverse the long-term uptrend.
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Chart 1
With the bigger trend still up, I view short-term declines as pullbacks or corrections within this uptrend. The red lines show a falling wedge taking shape as SPY tests the 200-day SMA. There was a big reversal day on Wednesday, but no follow through on Thursday-Friday. The falling wedge is typical for corrective patterns and I am watching 211 quite closely. A surge and close above this level would trigger a breakout and open the door to new high. The indicator window shows MACD below its signal line and in negative territory as upside momentum wanes. Look for a break above the signal line to turn this momentum oscillator bullish again.
A SMALL DIVERGENCE FOR THE EW S&P 500 ETF... Chart 2 shows the Equal-Weight S&P 500 ETF (RSP) battling its rising 200-day moving average since early July. Notice that RSP actually closed below this moving average a few times over the last five weeks. A big battle is being waged for control of the long-term trend. RSP broke support at 80.5 with a sharp decline in late June and briefly broke support at 79 with a dip in late July. Another close below 79 would argue for a decisive break of the 200-day and bearish trend reversal.
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Chart 2
The trend in RSP is down since late May, but I view this as a correction that is at its moment-of-truth. Either this correction ends with an upside breakout or the ETF breaks support to start a bigger downtrend. Here's what to watch short-term. First, RSP formed a big intraday reversal on Wednesday for the third test of 79. A follow through close above 81 would be bullish. Second, MACD formed a small bullish divergence over the last five weeks. Typically, I ignore bullish divergences when the bigger trend is down and I ignore bearish divergences when the bigger trend is up. In this case, the bigger trend is still up and we have a small bullish divergence. RSP formed a lower (closing) low from early July to late July, but MACD formed a higher low. Also notice that MACD is above its signal line and rising. This is positive and a break above the zero line would turn this indicator bullish.
HOME BUILDERS ETFS HIT NEW HIGHS... The Home Construction iShares (ITB) and the Home Builders SPDR (XHB) remain two of the strongest industry group ETFs in the market right now. Chart 3 shows ITB within an uptrend since December with a series of higher lows. The ETF surged above 28.5 this week and hit a new 52-week high. Within ITB, note that DR Horton (DHI), NVR Inc (NVR), Home Depot (HD), Masco (MAS), Mohawk Industries (MHK), Fortune Brands (FBHS), Owens Corning (OC) and USG Corp (USG) hit new highs. All told, 12 of the 41 stocks in the ETF hit new highs. Chart 4 shows the Home Builders SPDR (XHB) hitting a new high as well.
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Chart 3
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Chart 4
NETWORKING ETF BREAKS A WEDGE... The tide could be turning for the Networking iShares (IGN). Chart 5 shows the ETF with an uptrend marked by the rising channel since December. I am getting more negative on IGN because the ETF formed a lower high and broke wedge support over the last two weeks. The wedge is typical for corrective bounces and this break signals a continuation of the decline from late June to early July. The next test is long-term support in the 37 area. The indicator window shows two of the three PPOs turning negative. Chart 6 shows the Semiconductor SPDR (XSD) popping above 80, dropping right back below and testing flag support.
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Chart 5
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Chart 6
FINDING POCKETS OF STRENGTH IN A FLAT MARKET... The market may be flat overall, but there are some pockets of strength out there. I run a scan that looks for 52-week highs over the last five trading days. My ChartList includes country indices, international ETFs, major index ETFs, sector ETFs and industry group ETFs. This week we have eight sector and industry group ETFs hitting new highs. Even if you do not trade or invest in ETFs, this list is valuable because it shows the market leaders right away and these are the areas to look for setups in individual stocks. Notice that the Denmark Stock Index ($KFX), Tel Aviv Index ($TA100) and France iShares (EWQ) hit new highs. Chart 7 shows an image with these scan results and chart 8 shows this scan code.
Chart 7
Chart 8
REITS, UTILITIES AND BONDS HAVE STRONG WEEK... The precipitous decline in commodity prices put a bid into the 20+ YR T-Bond ETF (TLT) and this pushed the 10-YR Treasury Yield ($TNX) lower, which in turn put a bid into the REIT iShares (IYR) and Utilities SPDR (XLU). The advance in bonds, utilities and REITs puts these key ETFs at make-or-break junctures. In other words, these medium-term uptrends could be evolving into long-term uptrends. At this point, I think there is a link between weak commodity prices, strong bond prices and strength in utilities and REITs. A rebound in commodities or decline in bonds would likely weigh on utilities and REITs.
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Chart 9
Chart 10 shows TLT breaking its early July and late May highs with an advance the last six weeks. The ETF also broke the trend line extending down from late January. This is all bullish, but I am watching the current advance closely because the ETF hit a Fibonacci cluster this week. The 126 area marks a 62% retracement of the January to June decline and a 50% retracement of the March to June decline. This is just a concern because the immediate trend is still up with the Raff Regression Channel and broken resistance marking support in the 120-121 area. The indicator window shows all three PPOs in positive territory. Note that the long-term PPO (20,120,1) turned positive this week. At this point, I will respect the bullish evidence for what it is: bullish. A break below 120 and a return to negative territory from the PPOs would call for a reassessment.
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Chart 10
SCTR MAKES BIG MOVE FOR UTILITIES SPDR ... Chart 11 shows a long-term view for XLU. The ETF firmed in the 42 area this summer and surged above 45 this week. It looks like a falling wedge breakout that is bullish overall. The pink dotted line is the 5-week EMA and it crossed above the 52-week EMA (blue line). I like this EMA pair because 5 weeks is a little over a month and 52 weeks is a year. The indicator window shows the SCTR for XLU surging from 30 to 95 in about a month, which is a massive move in relative strength.
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Chart 11
Chart 12 shows daily bars for more detail on the breakout and immediate uptrend. I would stay bullish of XLU as long as 43 holds on a closing basis and two of the three PPOs remain positive. You can read more about SCTR in our ChartSchool article or see the complete SCTR table for ETFs
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Chart 12
REIT ISHARES LEADS IN JULY-AUGUST... Chart 13 shows the REIT iShares (IYR) finding support near broken resistance and the 38% retracement line this summer (72 area). The ETF firmed for a few weeks and then surged above 75 this week for a breakout. The 5-week EMA also moved above the 52-week EMA and the SCTR surged from 30 to 70.
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Chart 13
Chart 14 shows daily bars for more detail. IYR broke resistance from the blue Raff Regression Channel and is now poised to challenge resistance from the bigger Raff Regression Channel (red). As with XLU, the immediate trend is what matters here. The green Raff Regression Channel, August low and a buffer mark support in the 73-73.5 area.
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Chart 14
VIDEO DETAILS... Link for today's video.
