The Canadian Technician

The Arc Leads To New Highs


After 7 days of trying to break above, we finally notched new highs on the $NDX! I kept wondering if we would ever get to the land of the new high ground! Apple (AAPL) was one of the stocks powering higher, giving us a path over the zone of resistance. The SPY ETF tracks the S&P 500 and includes dividends; that chart made a new high, but the $SPX came up just short.

On the video, I mentioned the $SPX made a new high, but I was wrong, as it was a fraction short. It was the SPY (that includes dividends) that made the new high.

As with all good things, we now need to see the market not fall back down again! These new highs have been fleeting, so next week will be important to see if we can stay at new highs through the Fed meeting and month end. There is always something to watch for!

Here is the SPY chart on the back of a busy week of earnings:

The Nasdaq 100 was even more powerful, closing almost on the highs. That is pretty bullish!

On this weekend's video, I worked through strong stocks within the Consumer Discretionary (XLY). The XLY is one of the strongest indicators on the consumer, and the chart is weakening on the SCTR. I have three volume lines on the volume chart, but they all tell the same story: volume is declining. The momentum shown on the PPO is rolling over, as the previous test of the high came up short.

There were lots of charts within the sector outperforming the S&P 500 over the last three months. In general, however, the chart above says the average discretionary stock is oscillating sideways. This is shown by each wave of the PPO having lower momentum and shorter waves.

The weekly chart looks equally difficult. The Relative Strength trend line shown in purple broke the year-long trend this week. I will point out the SCTR ranking is at a very low level that it does not usually exist at. The question is, will it bounce right here and break out to new highs as it surges higher, or is it telling us the same as the September 21st, 2018 top? In the case of the latter, the low SCTR reading, low volume and the break in relative strength support marked a meaningful move lower. The move lower happened on the XLY, as well as the $SPX, $NDX and $RUT. It's an important time to pay attention.

I used a black line to highlight this week's volume. The level was 11.99 million shares. Last week, the volume was even lower, at just 11.55 million. These are very low levels. These volumes are way lower than most vacation weeks, like Thanksgiving or Christmas. There are only three other weeks in the last few years with lower volume. The most recent ones, in July and April, both had low volumes just before the market dropped. The last two weeks have some of the lowest volumes on the three years on the chart. Two of those low volume weeks were the vacation levels in 2017. It's definitely the calm before an upside breakout storm - or a complete backing away before the drop. I don't expect volumes to stay this low. My gut says lower, as the SCTR is making lower lows and lower highs.

While I want to be extremely bullish, with the market indexes testing and breaking out to new highs, I think this important group has major warning signs flashing.

Here is a link to this week's video, New Highs!

The Bridge to New Highs!

It's an important week to stay focused on which industry groups are working.

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Enjoy your week!

Good trading,
Greg Schnell, CMT, MFTA
Senior Technical Analyst,
Author, Stock Charts For Dummies

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Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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