There were a few downgrades this week as stocks took a big hit for the second time this month. The AD Lines were downgraded to neutral because the Nasdaq AD Line broke support and the NYSE AD Line has yet to break support. The dominant sectors were downgraded because three of the offensive sectors are underperforming on the one and three month timeframes. It would not take much to turn a few more indicators bearish because the AD Volume Line are near support and Net New Highs are on the verge of turning negative.
- AD Lines: Neutral. The Nasdaq AD Line broke support and started a downtrend. The NYSE AD Line turned lower, but remains above key support and has yet to breakdown.
- AD Volume Lines: Bullish. The Nasdaq and NYSE AD Volume Lines fell back towards support from the prior lows and have yet to break down.
- Net New Highs: Bullish. Nasdaq Net New Highs moved into negative territory, but the cumulative line has yet to break its 10-day EMA. NYSE Net New Highs dipped briefly into negative territory on Wednesday, but bounced back into positive territory on Thursday.
- Bullish Percent Indices: Bullish. Eight of the nine Bullish Percent Indices are above 50%. The Materials BPI ($BPMATE) is right at 50%.
- VIX/VXN: Bullish. The S&P 500 Volatility Index ($VIX) and the Nasdaq 100 Volatility Index ($VXN) surged over the last 3-4 weeks, but have yet to break above 20 and reverse their downtrends.
- Trend-Structure: Bullish. IWM, MDY and QQQ broke below their early April lows. DIA and SPY have yet to break below these lows. These lows were recorded less than three weeks ago so I am not sure how important they are just yet.
- SPY Momentum: Bullish. RSI dipped into the 40-50 zone for a big test. MACD(5,35,5) turned down, but has yet to turn negative. The Aroon oscillator turned negative, but has yet to break below -50.
- Offensive Sector Performance: Bearish. The Equal-weight Technology ETF (RYT), Finance SPDR (XLF) and Industrials SPDR (XLI) are underperforming the S&P 500 on the one and three month timeframes.
- Nasdaq Performance: Bearish. The $COMPQ:$NYA ratio flattened in 2013 and then moved sharply lower this week as the Nasdaq underperformed.
- Small-cap Performance: Bearish. The $RUT:$OEX ratio plunged to its lowest level of 2013. Small-caps are bearing the brunt of recent selling pressure.
- Breadth Charts (here) and Inter-market charts (here) have been updated.
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is
not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise).
We all need to think for ourselves when it comes to trading our own accounts. First, it is
the only way to really learn. Second, we are the only ones responsible for our decisions.
Think of these charts as food for further analysis. Before making a trade, it is important
to have a plan. Plan the trade and trade the plan. Among other things, this includes setting
a trigger level, a target area and a stop-loss level. It is also important to plan for three
possible price movements: advance, decline or sideways. Have a plan for all three scenarios
BEFORE making the trade. Consider possible holding times. And finally, look at overall market
conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
Learn More
