The Nasdaq sneezed and the Dow and S&P 500 caught the cold around lunchtime Monday. The tech rich benchmark lost 1.4%, making it one of its worst days since late June. The 8000 number proved to be to much as it CLOSED just above it last Thursday-Friday recording spinning top candles, which do often indicate fatigue. The S&P 500 fell .6% and is now below the 2900 number that represented the bull flag breakout, and one could make the case for a very pedestrian bearish evening star pattern with last Friday registering a hanging man candle. As heavy as it may feel give it credit as it did gain everyday last week, and the last 9 times that occurred the index was higher one week later 7 of the 9 times and the two down weeks both lost just .2% (h/t Ryan Detrick).
A real key to the overall markets for me is the line in the sand that the Russell 2000 is at as we speak. The small cap benchmark lost 1.1% today, and on days like today when tariff talk dominates the headlines it normally would outperform as it is perceived to be “tariff proof”. It is lower 8 of the last 10 sessions and many of them were dubious candlesticks with FIVE consecutive spinning tops between 9-7-13 and todays bearish engulfing pattern. Keep in mind the 1700 number was very difficult to CLOSE above with just three finishes above 6/20, 7/9 and 7/19 before jumping above for good on 8/21. It was a bull flag breakout as well and bulls need to see this former resistance become support.
The defensive minded groups showed unsurprising strength among the market debacle to begin the week as the utilities and staples were higher by by .3 and .4% respectively via the XLU and XLP (materials were right there too). The XLU currently spots yet another handle on a cup base 10 months long and the buy stop trigger would be 55.04. Since the week ending 6/22 the XLU has registered four 2% weekly gains of more, an impressive feat for such a conservative space. Obviously this fund is not going to make you rich quickly, but perhaps investors are clamoring to it in the month of September to forgo any perceived weakness, and the dividend yield of 3.2% is nothing to sneeze at.
Lacking any vigor Monday were just the spaces bulls like to see lead as technology and cyclicals were both easily the softest sectors on the session. The XLK and XLY lost 1.2%, and the XLK is looking like yet ANOTHER test of its rising 50 day SMA will be put to the test and one has to wonder how many times it will hold up. Sure it has to be given the benefit of the doubt, but if it were to be violated to the downside, a quick push toward the 200 day SMA could be in order. That line has not come into direct contact since June of 2016. Peering at the XLY, the ETF has not recorded an accumulation week (week rising more than 2% and CLOSING in the top of the weekly range with weekly volume greater than 25% of average weekly volume).
One would be wise to always monitor names that outperform on a weak tape. Of course todays tech tape specifically was influenced by AAPL, the Nasdaq’s largest component, but there were plenty of other software and semiconductor names that were dinged Monday. Below is the chart of DBX, and how it was presented in Wednesday 9/12 our Game Plan. On a very soft technology session it was able to produce a lukewarm gain of .5%, (it was higher by more than 2% early on. Technically it is still trading within the bullish engulfing candle from 9/7 that rose nearly 4%. It trades 40% off most recent highs and is on a current 5 week losing streak, and although I prefer to buy names that are exhibiting good relative strength, there is good risk/reward here in my opinion.