The major averages attempted a few intraday rallies, but in the end they fell, but this time it was the Nasdaq and Russell 2000 that “outperformed” losing .6 and .7% respectively. The Nasdaq is still higher 7 of the last 9 sessions and the last 3 have had very small intraday ranges, around 50 handles (the prior 6 days were much larger). The tech heavy index is slowing as it approaches that bearish engulfing candle at 7800 from 6/21.
The S&P 500 lost .7% today and it too is dealing with a round number of 2800. It has came very close to that figure four times since late February. The longer PRICE can not confirm the recent correction however, and the bears have had plenty of time too, the burden of proof for going lower remains with them. For all the negative commentary with news sources the Nasdaq and S&P 500 trade just 1 and 3% off their most recent all time highs.
For all the talk of the bond market being a leading indicator for equity markets, a quick look at the 10 year treasury yield is starting to shape the right clavicle in a bearish head and shoulders pattern. Softness was seen with the completion of a bearish evening star formation on 5/18 and follow through to the downside has been swift. Its chart had trouble at the big, can not call it round 3 number, unable to move decisively higher above it.
There was some clear bifurcation today within industries and the largest move was lower as energy fell more than 2% after crude recorded its worst day in over a year. Not to keep beating a dead horse but the triple top in the XLE dating back to December ’16 looks more formidable with each passing week. Could the news today that the US could become the worlds largest producer in 2019 yet another headline that we will look back on and say that called the top?
Leading Wednesday were the utilities, that are acting like that annoying piece of gum on the bottom of your shoe, refusing to go away. I still believe that 3% plunge in the XLU on Monday means something, perhaps that the financials are set to sparkle this week. Give credit where it is due as the XLU is on a 4 week winning streak and this week is just 60% finished, but if the current chart holds, one is looking at a bullish weekly hammer candle.
One should practice looking for names that exhibit solid relative strength on days like today. When markets sell off the vast majority of stocks will get pulled along, but those that manage to shrug off the weakness could be future winners, once the market catches it breath. Below is the chart of CARS and how it was presented in our Tuesday 7/10 Game Plan. This name takes on a more bullish narrative as it broke above a bullish inverse head and shoulders pattern, that also aligned with the round 30 number. Volume was well more than double the average daily, just what you want to see. The coming days will be crucial as we know the best breakouts work right away. Wednesday the stock came within pennies of breaking above a cup base trigger of 32.28 in a pattern 6 months long. A CLOSE above that number can be used to add to ones stake or initiate a new position.