.... Did the Uptrends Reverse for Semiconductors?
.... Intel and Four Semiconductor Equipment Stocks
.... Biotech ETF Test November Lows
.... BIIB Shows Relative Chart Strength
.... Bearish Wedges for Two Energy-related ETFs
.... Junk Bonds Continue to Struggle ....
Did the Long-term Uptrends Reverse for Semiconductors?
The Semiconductor SPDR (XSD) and Semiconductor iShares (SOXX) were hit hard over the last two weeks, but these declines are not enough to derail the long-term uptrends. First, these two advanced 24 to 27 percent from mid August to late November and then fell 8 to 9 percent over the last two weeks. The pullback is deep, but still within the confines of a normal retracement (38.2-61.8%). Second, both XSD and SOXX remain with golden crosses (50-day EMA > 200-day EMA). Both are now below their 50-day EMAs, but above their rising 200-day EMAs.
Assuming the long-term trends are up and the two-week declines are pullbacks within the bigger uptrend, these semiconductor ETFs are trading at interesting junctures right now. Personally, I view a dip below the 50-day EMA as more of an opportunity than a threat when the 50-day EMA is above the 200-day EMA. In addition, notice that RSI(10) dipped below 30 for SOXX and below 32 for XSD. Thus, both are short-term oversold within bigger uptrends.
The challenge with corrections is we never know how long they will last and how far they will extend. Notice that XSD and SOXX dipped below their 50-day EMAs twice in June and August before finally ending the summer correction. Having said that, a move back above the 50-day EMA would provide the first sign that the correction is ending. Before leaving these charts, notice that difference in the components. SOXX is dominated by large-caps with the top ten accounting for around 62% of the ETF. XSD is more evenly weighted with the top ten accounting for around 36%.
Intel and Four Semiconductor Equipment Stocks
The next chart shows five semiconductor stocks with long-term uptrends and pullbacks underway. The top window shows Intel forming a falling flag, which is a bullish continuation pattern. The green circle highlights a long black (filled) candlestick and a small spinning top. A long white (hollow) candlestick with a close above 45 would trigger a morning star reversal.
Notice that AMAT and LRCX also have possible morning star reversals working. As with momentum divergences, I only use candlesticks when they are in harmony with the bigger trend, which is up. This means I just ignore negative divergences and bearish candlesticks when the long-term trend is up. Instead, I only pay attention to small positive divergences and bullish candlestick patterns when they form during a correction or pullback.
I also realize that the classic morning star reversal is a three-candlestick pattern. However, Steve Nison, the candlestick guru, notes that we should also look for the "essence" of the pattern. AMAT and LRCX do not have morning star patterns yet, but a strong move in the next day or two would be enough to capture the essence of such patterns. The essence of the morning star is a sharp decline followed by indecision and a sharp advance.
Biotech ETF Test November Lows
The Biotech iShares (IBB) and the Biotech SPDR (XBI) looked poised for breakouts last week, but fell back to retest their November lows this week. The first chart shows IBB falling back to its August low and becoming oversold in late October and early November. The ETF surged off this alleged support zone, but did not get a breakout and fell back towards the support zone. Overall, I think the big trend is up and the decline from October to November is a correction within this uptrend. A close above 106 would signal an end to this correction and resumption of the bigger uptrend.
BIIB Shows Relative Chart Strength
Keep in mind that ETFs have dozens of moving parts (stocks) and these parts are mostly responsible for the price movements in the ETF. In other words, the component stocks move the ETF, not the other way around. Each stock has its own weighting, price characteristics, support and resistance. Furthermore, support and resistance levels for the individual stocks do not always jibe with support and resistance levels for the ETF. This is why I am wary of support and resistance levels for ETFs. The chart below shows the top five stocks for IBB. IBB may be at support from the August lows, but CELG and REGN, two of its biggest components broke well below their August lows. AMGN and GILD, on the other hand, did find support near the August lows. BIIB is the strongest of the group because it did not come near the August lows during its pullback.
The next chart shows XBI breaking above the channel trend line last Friday and then falling back the last three days. The big trend is still up and XBI is at a moment-of-truth as it tests the 2017 trend line and November low.
Bearish Wedges for Two Energy-related ETFs
The first chart shows the FirstTrust Natural Gas ETF (FCG) testing wedge support after a sharp three-day decline. Notice that the long-term trend is still down because the PPO(50,200,0) is negative. The ETF advanced from mid June to mid November and then reversed in the 38-50% retracement zone. Also note that Natural Gas ($NATGAS) has floundered in the $3 area since June. Assuming the long-term trend is still down, the rising wedge is a counter-trend bounce and a wedge break would signal a continuation lower.
Oil is trading in the upper 50s, but the Oil & Gas Equip & Services SPDR (XES) could not manage a neckline breakout and fell back towards support. The green text on the chart outlines Billy Bull's case, which is looking shaky. The red text outlines Bobby Bear's case, which is looking more likely. Also note that the long-term trend is down because the PPO(50,200,0) remains negative.
Junk Bonds Continue to Struggle
The unadjusted High-Yield Bond ETF (_HYG) got a big oversold bounce with a move back above 87.75 in late November, but fell back over the last four days and formed another lower high. Note that _HYG peaked way back in July and forged a lower lows in October and now November. With the downturn over the last four days, chartists can mark resistance at 88 and stay bearish on junk bonds as long as this level holds. The top chart shows the unadjusted 20+ YR T-Bond ETF (_TLT) moving above 128 and gaining over 4% since late October. The rise in TLT reflects a flight to safety and the fall HYG shows a flight from risk. This is a concern for the markets.
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--Arthur Hill CMT
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