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Just as many investors thought a breakout in the NASDAQ was for real, we got a wave after wave of selling throughout the week. Friday culminated with rather ominous looking candles on many indices and ETFs. $SPX lost over 2%, while QQQ fared better and closed at its breakout level.
Market breadth was narrow on the last week’s advance. I was really hoping for the divergences to be worked off this week, but it did not happen. The AD-Lines and the On Balance volume for both $SPX and QQQ did not confirm new highs. Summer month are traditionally weak for stocks, perhaps more downside is coming? Live $SPX and QQQ charts |
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Health care sector has been one of the market leaders, but Friday’s action raises an important question of whether sector rotation out of it has started. (BIIB dropped -22% on earnings report). Take a look at the chart of XLV. Friday morning the price gapped down over 1% and selling continued until the close forming a Marubozu candlestick. XLV ended the day below the 50-day average. There is decent support around the $73 area, but should that level give, XLV could easily correct another 4% or so down to the 200-day moving average.
Bonds (TLT) traditionally do well during the summer month. Combined with a potential sell-off in stocks, it seems that money has been rotating into bonds. TLT gained 2.25% for the week. The important feature of its chart is that it broke out above initial resistance at $120.57. Next important level for TLT to close above would be the 200-day moving average – currently at $123.
The dollar index ($USD) broke out above resistance last Friday. This week $USD spent time consolidating its gains with a slight pullback. This is very normal for an up-trending security. I think more upside is very likely for the dollar index. This will weigh on commodities of all sorts including precious metals.
Gold was down over 5% for the week before managing to find support on Friday. Gold is long-term bearish, but may be exhibiting signs of a short-term bottom. There were several hammer-like candlesticks this week and especially Friday’s candle looks like bottoming action is taking place. A rebound to broken support around $1140 is in the cards.
Gold Chart
Gold Chart
GDX was down over 14% for the week, but managed to pullback. GDX is a strongly bearish security, so bottom fishing is notoriously difficult (and fraught with unnecessary risks).
... Having said that, GDX is very oversold on numerous parameters. Momentum oscillators, such as MACD, are at a level where previous rebounds took place. We had a gap down on Monday, which needs filling. Most importantly, however, is the fact that the Bullish Percent index for GDX was at zero today. That’s right, there is now not a single stock within GDX that is on a Point & Figure chart buy signal! During the previous lows in GDX this was one of the more reliable indicators of a bottoming action.
Live GDX chart with market breadth
... Having said that, GDX is very oversold on numerous parameters. Momentum oscillators, such as MACD, are at a level where previous rebounds took place. We had a gap down on Monday, which needs filling. Most importantly, however, is the fact that the Bullish Percent index for GDX was at zero today. That’s right, there is now not a single stock within GDX that is on a Point & Figure chart buy signal! During the previous lows in GDX this was one of the more reliable indicators of a bottoming action.
Live GDX chart with market breadth
GDXJ – the Junior Gold Miners ETF – also had a possible Bullish Engulfing pattern on its chart today. I say possible, because it needs a confirmation soon with prices pushing higher.
Live GDXJ Chart
Live GDXJ Chart
Strong dollar is weighing on oil as well. $WTIC broke down from a bear-flag formation last week and closed down 5.55% this week. I still have an open short in oil, but did book some profits in the inverse oil ETF (symbol SCO).
Unsurprisingly down trending oil is weighing on energy stocks and countries that export oil. XLE – the Energy ETF - had a bearish breadth momentum oscillator signal in late April and never looked back. XLE just hit a fresh 52-week low. While EWZ – the Brazil ETF – went on our short signal also at the end of April and today hit a multi-year low.
Finally, it seems that natural gas ($NATGAS) is at a point where another leg down in prices seems likely. On Thursday, we opened a position in DGAZ (inverse natural gas ETF). I am thinking $NATGAS may at least retest the mid-July lows @ $2.64.
That’s it for this week’s market recap,
Best Regards and have another great trading week!
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Alexander Berger (www.MasterChartsTrading.com)
Best Regards and have another great trading week!
** Special Announcement**
We are close to launching a stocks alert service. Please sign-up for our mailing list to be the first to take advantage of the discounted membership once it becomes available!
Alexander Berger (www.MasterChartsTrading.com)
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