The chart problem that’s raising a big yellow flag for the market
" The chart problem that’s raising a big yellow flag for the market "
in the news The chart problem that’s raising a big yellow flag for the market? What this all about..... See below.
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Sentiment Trader If you want to know where the broad market is going, you have to keep an eye on tech stocks.
Wednesday should be relatively quiet, given the timing of the Fourth of July this year. For that matter, we might see rather muted activity this whole week. But investors should continue to focus on the action in tech stocks.
The XLK ETF, which tracks the S&P 500 tech sector, underperformed yet again on Monday's short session. It has broken and remained below its 50-day moving average, which acted as a supportive trend line from November. And the ETF made a key "lower low" on Monday, meaning that it slipped below its prior intraday low. This is the first "lower high"/"lower low" sequence we've seen since November.
Here is the chart.... We are breaking down from the channel, as we told OUR VIP MEMBERS HERE....
Unless this group can see an immediate and strong bounce, the action is going to be a big yellow flag for the broader market as we move through the rest of the summer. Tech has obviously been an important leadership group this year, so if it continues to decline, we believe it's going to be negative for the broader market as well — eventually.
That said, we do have to admit that the S&P 500 is holding up very well so far. Despite the 5.4 percent decline in the XLK, the SPX remains only 1 percent below its all-time highs. It is also holding above its own 50-day moving average. So should you panic right now? Well, NO!!!
The S&P did break below that indicator (which, as a reminder, is simply an average of the 50 most recent closes) a couple of times in April and once in May. However, those "breaks" were very slight ones. So while we could see another break below the moving average, I'm going to have to see a substantial one before we become concerned about this broader index.
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