This week the Weekend Profit Navigator takes a look the weekly charts of the major indexes along with several key sectors. Key levels and trade locations are provided along with commentary to keep you on the right side of the trade.
General Market Outlook and Conditions
The big down week in markets was highlighted by a Fed fumble and an escalation of the trade war. Bond yields nose dived, commodities like oil and copper had their worst weeks of the year, while the US Dollar rose as did Gold.
Markets around the globe suffered worse than we did. Asian, European, and Indian markets also sank as sentiment turned dark.
I expect volatility to escalate into August and September. From a seasonality standpoint, these are 2 of the weaker months on the calendar to begin with. Trade wars and global growth concerns may add to the weak seasonal trends.
Let’s take a look at the weekly charts of the Indexes.
$SPY Weekly
Bullish Factors: Price remains above the April high and above the uptrend line off the December low. Price also remains above the key 40 week ema in green.
Bearish Factors: Price had an igniting wide range sell bar this week. Also it comes after price hit a divergent high. A divergent high is when price advances to a high as the indicators are at lower and lower levels. Divergences are not sell signals but indicate deteriorating underlying momentum that more often than not leads to a downside move. We’ve had persistent bearish divergences that look poised to play out.
Bottom Line: As long as prices stay above $290 and the uptrend line, further downside can be avoided. If however the uptrend line is violated, I see more downside to at least the $286 level for starters and likely that sets up for a 40 week ema test. Breaks lower on RSI and a bear cross on the PPO would support the near -term bearish case.
Trade Ideas: Given support is support until or unless broken, prices above $290 keep the bull case alive. If you are trading off the weekly charts, a break of $290 is an objective place for a short with a stop just above. Although it is not shown here, a bounce to $294 on the daily chart would also be an objective shorting location with a stop above.
$QQQ Weekly
Price dropped over 4% this week coming off a divergent high. The wide range igniting sell bar looks similar to the igniting bar we saw back in September 2018.
Bullish Factors: Price remains above key support at $185, its uptrend line off the December lows, and the 40 week ema.
Bearish Factors: The indicators look poised to break trendlines and move to the downside. Big igniting wide range bars seldom occur in isolation; they usually see follow through. Not necessarily the following week, but soon thereafter.
Bottom Line: Bulls would be doing well to keep price above $185. To get QQQ on firmer footing, price needs to reclaim $190 and hold it. I favor more downside based on the divergent high, indicator positioning, and the extent of last week’s selling.
Trade ideas: A break of trend and a loss of $185 is an objective place for a short with a tight stop.. That said, $185 is a location where ardent bulls should try to buy the dip. In and around $190 is also a location of interest. A break above and hold would give bulls a place to add to their positions if they did not buy at lower prices.
$IWM Weekly
Price is moving into an ever narrowing consolidation triangle. $159.50 has capped all efforts to break higher from the range. For all but nimble day traders, the recent narrow trading range has been a kill zone for swing traders. Now price is on the verge of escaping the triangle.
Bullish Factors: Price is not that far away from a breakout and all of the ema’s have converged. In past weeks, IWM has proven anything is possible and to expect the unexpected.
Bearish Factors: The indicators are growing weaker and weaker and in my opinion will break lower. Price has underperformed QQQ and SPY for months. If SPY and QQQ remain weak or head lower, hard to see IWM leading the other way.
Bottom Line: A break from the triangle is close and which ever way it breaks should finally offer swing traders a signal that should last several weeks if not longer. Use breaks from the triangle to determine bullish or bearish positioning. Don’t front run the signal. Wait for the breakout of breakdown.
Trade Ideas: A price break below trend is a sell signal. On the long side, I need to see $160 taken out. There have been too many top-side breakout head fakes to make me want to get long anywhere below. Would rather buy above $160 and miss a point or two than try to front run the breakout.
Key Sector Review
Financials – Banking Sector, Regional Banks, and Broker / Dealers
Financials go slammed this week producing false breakouts. If you look at the charts below you’ll see what I mean.
$DJUSBK Weekly – Banking industry Group
Aside from the false breakout, notice the RSI and PPO indicators becoming weaker and weaker. This index never came close to taking out the 2018 highs and heads lower and lower despite the broad market near all time highs.
$KRE Weekly – Regional Banks
Regional banks are testing the low side of a narrowing triangle after a false breakout. Any move lower puts it on a sell signal. The move lower in rates hurts small banks more than big banks because they derive most of their income from conventional loans. Big banks have a more diverse income stream. Watch for a break below trend to get short.
$XBD Weekly – Broker /Dealers
Broker / Dealers like $AMTD and others are often a leading indicator for markets. Again, the index never got close to 2018 highs and it too is pressing the downside of its consolidation triangle. Watch this one for clues about the health of the financials and the market in general.
Technology and Semiconductors
$XLK Weekly – Tech Sector
Price held $79 which was its breakout level so that is a positive. It is also above its up trend line off the December lows. While those 2 factoids are positive, the 4% drop and bearish divergences cant be dismissed. A move below $79 would be a bearish development. A break of the uptrend line would favor a move to $74.50 which was the Sep 2018 high.
$SMH Weekly – Semiconductors
Semi’s are a leading indicator for tech. They were down a whopping 6+% this week and dropped from a steep advance. Despite their recent rise, earnings were down YoY. Most of the names beat lowered guidance. The trade issues only make matters worse. I think these head lower. The real test comes near $107.50 where the next level of support kicks in.
Tying it all together
The market has shown tremendous resilience in past months but I think the slowing global growth picture is beginning to catch up with the market. The May low was $273 which is $20 lower from here. I am not in the prediction game but I would not be surprised if we revisit that location. THat is nothing to trade off of though. We will take that day by day, level by level and let price be our guide.
I plan to do a follow up post on the world markets, but if you want to jump ahead, look at Japan, India, Germany, Hong Kong. They are nose-diving and I think that sentiment will eventually find it’s way here.
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Notes:
The charts are and levels are provided as well-informed guidelines. That said, please be aware that exogenous events like surprise tariffs or other events can easily move price through support / resistance zones.
Also, set you stops according to your own risk tolerance. The ones I have provided are to be used only as a guide. The most important aspect of your stop is to honor them. Some trades work, some don’t. Honoring your stop will ensure your loss on a failed trade will be minimal.
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