MAJOR US STOCK INDEXES ARE TRYING TO STABILIZE NEAR 200-DAY AVERAGES AND FEBRUARY LOW -- TECHNOLOGY STOCKS ARE WEIGHING ON THE MARKET -- ESPECIALLY FAANG STOCKS -- BUT FACEBOOK LOOKS OVERSOLD WHILE ALPHABET IS TESTING CHART SUPPORT
DOW AND THE S&P 500 ARE RETESTING 200-DAY LINES ... The Dow and the S&P 500 are still in the process of retesting underlying support levels near their 200-day averages and February lows. Chart 1 shows the Dow Industrials retesting its February intra-day low at 23,400 as well as its 200-day average (red arrow). This would be a logical spot for it to start to stabilize. And it's trying to do just that. Its 14-day RSI line (top of chart) is bouncing off oversold territory at 30 for the second time since February. The 14-day Slow Stochastics oscillator (bottom box) is already in oversold territory below 20 and trying to turn positive. Chart 2 shows the S&P 500 trying to bounce off its 200-day line for the second time in a week. Its oscillators are also trying to stabilize from oversold territory. The first overhead resistance to watch is yesterday's intra-day high at 24,400 in the Dow and 2674 in the SPX. A close above those levels would be an encouraging sign. In order to do that, however, they're going to need help from technology stocks.
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Chart 1
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Chart 2
TECH SELLING IS WEIGHING ON MARKET ... At its January top, technology was the biggest sector in the S&P 500 (25%) and also its strongest. It's still the biggest, but has been its weakest sector over the past week. That wouldn't be so bad if some other sectors moved up to take its place. But none have so far, other than a modest rebound in safe havens like staples, utilities, and REITs. That's not where you want to see market leadership in a market trying to recover from a 10% correction. The daily bars in Chart 3 show the PowerShares Nasdaq 100 (QQQ) falling to a one-month low on rising volume. It does, however, remain well above its early February low and its 200-day average. It's hard to imagine the market making a strong rally attempt without the QQQ lending some support. That would depend on buying in the technology sector. Chart 4 shows the Technology SPDR (XLK) in a similar situation as the QQQ. The red line overlaid on the price bars shows the XLK/SPX ratio falling over the past two weeks. Loss of technology leadership has removed one of the driving forces behind the stock market and is now one of the main factors holding it back.
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Chart 3
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Chart 4
FAANG STOCKS HAVE BEEN A BIG DRAG... A lot has been written about the recent downturn in so-called FAANG stocks. Especially those tied to social media like Facebook which has been the biggest loser in that group. The stock has lost 18% of its value from its February top. Chart 5 shows Facebook (FB) tumbling to the lowest level in eight months. The stock, however, is nearing potential support along its May/June lows. It has also moved into the 50%-62% Fibonnaci retracement zone of its 2017 gains which might provide some support. And its 14-day RSI line (top of chart) has moved into oversold territory below 30 for the first time since late 2016. Those factors combined may suggest that the stock's selloff has been overdone. Any sign of stability in the stock would be a positive sign for it and the rest of the group. Chart 6 shows Alphabet (GOOGL) trying to hold support at its December/February lows (flat trendline). That's an important test. Chart 7 shows Apple (AAPL) trying to stabilize above its 200-day average. So far, chart damage to the market's biggest stock has been relatively modest. Those three stocks account for most of the FAANG losses.
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Chart 5
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Chart 6
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Chart 7
VANGUARD FOREIGN STOCK ETF IS ALSO RETESTING 200-DAY AVERAGE... Last weekend's message showed the MSCI All Country World Index headed back down for a retest of its 200-day moving average. But that index includes the U.S. Chart 8 shows the Vanguard All-World ex US ETF (VEU) which doesn't include the U.S. doing the same. The VEU includes foreign developed and emerging markets. The last time the VEU traded below its 200-day average was during the first half of 2016 when it was recovering from its last major downside correction. There's a lot riding on the 200-day line holding for foreign stocks as well.
