Indexes were pummeled to begin the week as the Nasdaq was a vast under performer, slipping 2.1%. This is where growth investors take their cue from and it is sending negative signals. Looking at its daily chart shows wide and loose trade, often indicative of toppy action.
The S&P 500 CLOSED right at its 50 day SMA today, and the Dow did so at its 200 day SMA too. We talked last week about it coming into contact with that important line to frequently this year. It is now nearing correction territory off by 9% from its most recent 52 week highs, as the S&P 500 and Nasdaq are 5 and 4% off their respective highs.
The VIX came alive in a big way Monday gaining nearly 30%, breaking through a bullish falling wedge pattern, which could lead to a big measured move. It followed through firmly from last Thursdays bullish engulfing candle and sprinted decisively above its 50 day SMA today. The 20 number put a stop to the rally cold, but that could prove temporary.
Remember those pesky utilities and staples. They have been stout recently and do not seem to be going away. The XLU and XLP were big winners Monday with gains of 1.7 and .5%. The XLU is now above its 200 day SMA, and the rounded bottoming formation that has taken place for the last 5 months looks legitimate. It has been gradual, although the group tends to trade anything but erratic, just the way you want to see bottoms form.
EIGHT of the top ten XLP holdings were higher Monday, but I prefer the XLU as volume has been elevated on the downside for the staples. But as always judge each individual chart within the ETFs on their own merit. That being said the XLP is vying for its first 4 week winning streak this week.
Technology was assaulted Monday as the XLK slumped 2.1%. The pause the 2 weeks ending between 6/8-15, which recorded spinning tops at all time highs (which often signal a pause in the prevailing trend), now look like fatigue instead of healthy digestion. The ETF has printed big weekly losses so far in ’18 of 4.4 and 7.7% the weeks ending 2/9 and 3/23. This could be footprints of institutions trimming positions.
The economy seems to be firing on all cylinders as the talk of 4% GDP heats up. I am certainly not an economist, and I solely look at the PRICE action in individual names and let them speak for themselves. Now in every industry their will be winners and losers, which could occur for a variety of reasons whether it be poor management, geographical location, etc. Below is the chart of FLR and how it appeared in our Wednesday 6/20 Game Plan. This was a former best of breed name that is now in bear market mode down 22% from most recent 52 week highs. It has been below the 200 day SMA for nearly 2 months now and seems to be failing at the very round 50 number too. Formidable opponents to ignore. Getting back to the 4% chatter, things often look best at the top, however I am not in that camp.