As the saying goes when the US catches a cold the rest of the world sneezes, but the worry this week is can the domestic benchmarks continue to carry the load achieving the lion share of gains. The dispersion is widening as for example the S&P 500 is up 6% YTD and Germany is now in correction mode down 10%. Friday it was the Russell 2000 that “outperformed” losing .2%, but it was higher during market hours at one point. That small cap benchmark is UP 10% YTD, and three days this week it came within 5 handles of the line in the sand mark of 1700 before shying away. That should be the level to watch again next week.
On a weekly basis the Russell 2000 gained .8%, the Nasdaq .3, the S&P 500 lost .2 and the Dow fell .6%. The S&P 500 came within 9 handles of touching all time highs before backing off, and one has to wonder if it is heading back once again to touch its magic 2800 figure. That number has been touched plenty since breaking above on 7/13, and the argument there is whether the abundance of contact strengthens or weakens it. The good news for the bulls is that the upward sloping 50 day SMA is catching up to 2800 now and that should give an advantage to the bulls. The leading Nasdaq did record a bearish shooting star this week, although the length of the candle was very small.
The VIX came alive Friday as it jumped nearly 17%, demonstrating solid follow through after Thursdays bullish hammer candle. Its bullish falling wedge is alive and well, but it was stopped on a CLOSING basis at its downward sloping 50 day SMA, after coming very near its upward sloping 200 day SMA. The latter line has been stubborn resistance the last 4 weeks, and on its RSI is now in the bullish zone above 50 at 53. Since March it has struggled when contacting 60. Next week should be very interesting indeed.
Energy was the only major S&P sector to advance Friday with the XLE higher by .6%. The ETF CLOSED in the lower half of the weekly range for the second straight week, but to be fair this week fell by two pennies. The fund still looks on the weekly chart bullish with a bull flag pattern. The multitude of negative earnings reactions would have me leaning bearish but again, there is nothing to do until a breakout to this upside occurs. The weekly candles lean bearish as well, but as we all know markets attempt to confound the most.
On a weekly basis it was the staples that were hardest hit with the XLP dropping 1.9%. Its lost ground 4 straight sessions after the bearish evening star pattern which was completed Tuesday after a doji candle was recorded Monday. The ETF still remains above its 200 day SMA, and its chart looks similar to the USB daily chart. It remains 10% off most recent 52 week highs and volume was soft but it needs to charge higher next week as the uptrend is still intact but it does not want to undercut both its 50/200 day SMAs that lie in close proximity.
Technical analysis is far from a science and like any other strategy there is plenty of room for failure. One of the huge benefits however is that is gives investors a clear out to limit losses. Keeping losers small is key to capital preservation and below is an excellent example. Here is MTCH and how it was presented in our Tuesday 7/31 Game Plan. We viewed it as a short as it broke decisively underneath a symmetrical triangle. It reacted to earnings on 8/8 and for a FIFTH consecutive time advanced this most recent time by 17.3% on 8/8. If one wants to Monday morning quarterback it could say it overreacted to the FB announcement of entering the dating space on 5/1 cratering more than 22% on gigantic trade. The loss was small due to a tight stop and those that did not adhere to discipline had to endure a 34% gain this week.