In this exclusive StockCharts video, Joe shows how he sets up the RSI 20 and 5 in ACP to save space and improve analysis. He explains how he uses RSI for both reading the trend and for fine-tuning entry in a strong trend. He gives examples using weekly, daily, and hourly charts in SPY. Joe then discusses the position of the Sectors using a part of his regular Monday report to subscribers, and finishes by going through the symbol requests that came through this week (including PTON, ZM, and more).

This video was originally published on October 23, 2024. Click this link to watch on StockCharts TV.

Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.

As we get into the meat of Q3 earnings season, I’m seeing a growing and concerning number of signs of distribution in the equity markets.  From lagging breadth indicators to deterioration of trend for the market leaders, we could be entering a painful period for risk assets!  Let’s go through three different lenses through which we can make sense of the market environment in October 2024.

The S&P 500 is Holding Up (For Now)

My daily S&P 500 chart shows how 2024 has looked and felt a great deal like 2021 or 2017, with a slow and steady uptrend and minimal drawdowns.  

In this sort of environment, I go with the “line in the sand” approach, where I identify a key level or signal that would tell me the uptrend phase may be ending.  A simple trendline using the August and September lows has provided a clear line in the sand going into October, and as long as the S&P 500 remains above this trendline support, then the uptrend remains intact.

But as we’ve been tracking on my daily market recap show, CHART THIS with David Keller, CMT, the benchmark has been getting dangerously close to this trendline support in mid-October.  So while the 2024 uptrend remains intact, the end of the trend may be fairly close.

Breadth Indicators Showing a Bearish Divergence

What other approaches can help us anticipate when the end of the trend is near?  Here I’m showing the S&P 500 on a closing basis, along with two breadth indicators I review every single day.

The second panel includes the percent of S&P 500 members above their 50-day moving average, and the bottom panel displays the S&P 500 Bullish Percent Index.  Notice how both of these breadth indicators have been sloping downwards in the month of October, while the S&P 500 has been trending higher?

This bearish divergence between the major averages and key breadth indicators tells me that while many stocks still remain in primary uptrends, more and more are experiencing a price drop to the degree that they are either breaking below the 50-day moving average, or generating a sell signal on their point & figure chart, or both!

MarketCarpet Speaks to Weakness in Mega Cap Growth

Once I have a general sense of a broad market theme, I like to use the StockCharts MarketCarpet tool to better visualize how the various index members are moving in relation to the trend in the benchmarks.

Here’s the S&P 500 MarketCarpet from midday on Wednesday.  Notice how some of the largest market cap names, including AAPL, NVDA, META, and AMZN, are glowing with some of the brightest red on the heatmap?  When the “big dogs” are driving lower, our growth-dominated benchmarks have literally no chance to move higher.  

As we push through earnings season into early November and elections, I’ll be watching the MarketCarpet every day to look for further signs of distribution.  Because if the generals are struggling, the market as a whole could be in for a painful Q4.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

The overall trend in the stock market’s broader indexes remains bullish. While the indexes were trading lower on Tuesday morning, they rebounded and ended the day relatively flat. The S&P 500 ($SPX) and Dow ($INDU) closed slightly lower, and the Nasdaq Composite ($COMPQ) closed a little higher.

Consumer Staples Sector Leads

Philip Morris International (PM) reported better-than-expected earnings, which increased the stock by 10.46% on Tuesday, making it the top performer in the S&P 500 (see MarketCarpet below). Walmart (WMT) was another stock that helped the Consumer Staples sector secure the top spot in Tuesday’s S&P 500 sector performance. WMT is the heaviest-weighted stock in the Consumer Staples sector, and it closed up by 1.51%, notching an all-time high.

FIGURE 1. MARKETCARPET FOR OCTOBER 22. Consumer Staples was the best-performing sector, mainly due to strong earnings from Phillip Morris.Image source: StockCharts.com. For educational purposes.

It’s worth viewing a daily chart of the Consumer Staples sector using the Consumer Staples Select Sector SPDR ETF (XLP) as a proxy.

FIGURE 2. DAILY CHART OF CONSUMER STAPLES SELECT SECTOR SPDR FUND (XLP). Although it was Tuesday’s leading sector, overall, it’s been trending lower. The S&P Consumer Staples Bullish Percent Index and its relative performance against the S&P 500 confirm the lack of momentum in this sector.Chart source: StockCharts.com. For educational purposes.

After hitting a high in mid-September, XLP has been trending downward within a channel. The S&P Consumer Staples Bullish Percent Index ($BPSTAP) is also trending lower, approaching the 50 level. A move below 50 would be bearish for the sector. XLP’s relative performance with respect to the S&P 500 is at -5.34%.

Overall, even though XLP was the highest sector performer on Tuesday, indicators point to a slightly weakening sector.

Tech Leads In One-Month Performance

If you look at a one-month performance of the 11 S&P 500 sectors, XLP sits in the bottom three. Technology is the leading sector in one-month performance. The Technology Select Sector SPDR ETF (XLK) is in a consolidation similar to the Nasdaq Composite ($COMPQ).

The Nasdaq has been moving sideways for the last week, but saw some action on Tuesday afternoon. If you look at the chart below, you can see the Nasdaq managed to maintain the support of the triangle and broke out above resistance. It looks like the Nasdaq wants to spring to the upside; it’s only 0.4% from its high. Maybe it’s pre-earnings anxiety. Most of the mega-cap tech stocks will be reporting quarterly earnings next week, so it could be getting a head start.

FIGURE 3. DAILY CHART OF NASDAQ COMPOSITE. The Nasdaq is in a narrow consolidation at the apex of a triangle. Which way will it break out? Look for the breadth indicators to confirm the direction.Chart source: StockCharts.com. For educational purposes.

The three breadth indicators—the Nasdaq Composite Bullish Percent Index ($BPCOMPQ), the percentage of Nasdaq stocks trading above their 200-day moving average ($NAA200R), and the Nasdaq Advance-Decline line (!ADLINENAS) in the lower panels—aren’t confirming the uptrend, although that could change if the Nasdaq gains momentum and roars higher.

Top of the News: Yields, Gold, US Dollar

Overall, it was a relatively quiet trading day in equities. With Tech earnings, key economic data, the presidential election, and a Fed meeting in the next two weeks, you’d expect a lot of uncertainty. Yet the CBOE Volatility Index ($VIX) is relatively low at 18.20.

The uncertainty was felt in other areas of the market. The benchmark 10-year US Treasury yield ($TNX) closed at 4.21%, gold prices ($GOLD) closed at a record high again, and the US Dollar Index ($USD) continues to strengthen.

The Bottom Line

Until the “uncertainties” become “certainties,” it may not make sense to add positions. Instead, focus on managing your open positions. Engage with the stock market by monitoring the StockCharts Sector Summary and MarketCarpets to see which sectors investors gravitate towards so you know how to allocate your portfolio.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

In this video from StockCharts TV, Julius addresses US sector rotation and takes it to the next level when he dives into the breakdown of the Consumer Discretionary sector, looking at the industries inside that sector. While analyzing the sector from a top-down perspective, he shows you how you can get there using the tools on the StockCharts website.

Eventually, he arrives at one industry that stands out and highlights two stocks in that group with good potential in coming weeks.

This video was originally published on October 22, 2024. Click anywhere on the icon above to view on our dedicated page for Julius.

Past episodes of Julius’ shows can be found here.

#StayAlert, -Julius