The earnings from
), combined with higher rates spurred by better unemployment
numbers, caused the heaviest stock market selling in quite some
time. All the major sectors closed lower with seven losing more
The decline was consistent with the deterioration in the technical
studies that has been evident over the past few weeks. There was a
divergence between the number of stocks making new highs and new
lows, and the new lows spiked to 375 on Thursday.
has dropped to -228, which is a moderately oversold level. This
does increase the odds of a rebound in the next week or so.
Click to enlarge
outlook for August
, I continued to recommend taking profits as the market was moving
higher; using the
quarterly pivot point analysis
in combination with
can be a good way to identify profit-taking levels. In early July,
I provided a table of third-quarter pivot levels to save for future
I have now also added the third-quarter highs for each of the
, and only the
Select Sector SPDR Utilities
(NYSEARCA:XLU) has not reached its quarterly R1 resistance. Four of
the ETFs have come within 1-2% of their R2 resistance levels before
they reversed this week.
During the current market correction, it will be important to keep
an eye on the quarterly pivot levels, which is at $161.01 for the
(NYSEARCA:SPY). They should provide an important level of support.
Three of the four ETFS featured below were up over 8% at their
Click to enlarge
Select Sector Consumer Discretionary ETF
(NYSEARCA:XLY) exceeded the quarterly R1 resistance at $59.01 in
- XLY's high at $60.75 was just 1% below the quarterly R2
resistance at $61.62.
- The down gap opening Thursday completes a short-term top with
next support in the $57-$57.50 area.
- The quarterly pivot is at $55.46 along with the daily
uptrend, line a.
- The relative performance did form a short-term divergence,
line b, at the recent highs.
- The RS line is holding well above the uptrend, line c.
on-balance volume (OBV)
also formed a negative divergence at the recent highs, line d,
and has dropped well below its WMA, as well as the prior
- Initial resistance is now at $59.48 and the 20-day EMA.
Select Sector SPDR Health Care ETF
(NYSEARCA:XLV) was one of my favorite
sectors for 2013
, and it hit a high of $51.50 on August 1, which was just 2% below
the quarterly R2 at $52.52.
- The close Wednesday was the lowest since July 16, so those
who bought in the past four weeks are now showing a loss.
- There is next support in the $49 area with the quarterly
pivot now at $47.95.
- There is trend line support just below $47 (line e).
- The 38.2%
retracement support from the November 2012 lows is at
- The relative performance peaked in April and did not make a
new high, line f, with prices.
- The RS line has strong support now at line g.
- The daily OBV did make a new high with prices but has just
dropped below its WMA.
- The OBV has more important support at the uptrend, line
Click to enlarge
- There is initial resistance now in the $50.50-$50.80
iShares Russell 2000 Index
(NYSEARCA:IWM) made a high of $105.63 on August 5, which was a gain
of 8.9% for the quarter.
- The gap below support $103-$103.33 now creates a strong level
- IWM is now just above the quarterly R1 resistance at $101.88,
which was surpassed on July 11.
- The recent high was just 1% below the quarterly R2 resistance
- The daily uptrend, line a, is now at $97.60 with the
quarterly pivot at $95.50.
- The 38.2% Fibonacci retracement support is now at
- The daily OBV did confirm the recent highs but has now
dropped below its WMA but does not yet show a completed top
ProShares QQQ Trust
- The weekly OBV (not shown) is still above its WMA
(NYSEARCA:QQQ) closed well below its 20-day EMA Thursday after it
made a new rally high at $77.27 on Tuesday.
- QQQ opened the quarter above the pivot at $71.03, which was a
- The move above the R1 resistance at $75.19 set the next
target at $79.10, the quarterly RS level.
- The next support is in the $73.70 to $74.40 area.
- The 38.2% retracement support from the November lows is at
- This is very close to the quarterly pivot ($71.03) and daily
uptrend, line d.
- The relative performance is still above its WMA but is below
the July highs.
What It Means:
- The OBV may have formed a short-term top but there were no
strong divergences at the highs.
Thursday's sharp decline likely confirms that the stock market is
in the top-building process. Given the weakness in the market
internals, a rebound is likely by early next week.
Unless the A/D ratios are very strong on the rally, it should set
up a good buying opportunity in the inverse ETFs for either a trade
or to hedge your existing equity positions.
Editor's Note: This article was written by Tom Aspray of
Below, find some more great investing and trading content from
Pay Attention to This Software Company
Betting on Buybacks
High Income from Alternative ETFs