In this StockCharts TV video, Mary Ellen reviews the current downtrend taking place in the S&P 500 and Nasdaq, and highlights the “uninverting” yield curve. She finishes with a deep dive into Nvidia, sharing how to handle the stock depending on your investment horizon.

This video originally premiered September 6, 2024. You can watch it on our dedicated page for Mary Ellen on StockCharts TV.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

After a week of wavering action, the stock market made a directional move—a lot lower—after Friday’s jobs data. Investors are concerned about the economy, and the narrative has switched from inflation worries to thinking that perhaps the Fed is too late in cutting rates. Today’s MarketCarpet shows a lot of red.

It will be interesting to see how much the Fed cuts interest rates in their September meeting. As of this writing, the probability of a 25-basis point interest rate cut is 71%, with a 50-basis point probability lowering to 29%. Will this change if next week’s August inflation data comes in cooler than expected? That remains to be seen. In the meantime, let’s see how much damage occurred in equities.

Analyzing the Stock Selloff

The S&P 500 ($SPX) was holding on to the support of its 50-day simple moving average (SMA) until Friday, when it plunged toward its 100-day SMA. The stochastic oscillator has also entered oversold territory, so watch this level to see how long it stays at this level.

CHART 1. S&P 500 SELLOFF SENDS THE INDEX TOWARD ITS 100-DAY MOVING AVERAGE. Keep an eye on the stochastic oscillator or any other momentum indicator.Chart source: StockChartsACP. For educational purposes.

Is this a case of too much too quickly? It may seem that way, but if you’ve been investing for a while, you know that when the market is overextended, a quick and dirty selloff happens.

Big Tech stocks got slammed. Tesla (TSLA), one of the stronger performers this week, gave up most of those gains, falling over 6%. The rest of the Mag 7 stocks—Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Nvidia (NVDA), and Meta Platforms (META)—got slammed as well.

Broadcom (AVGO) sold off after announcing earnings on Thursday after the close, which may have added more fuel to the fire in the semiconductor selloff.

The daily chart of the VanEck Vectors Semiconductor ETF (SMH) clearly shows a downtrend. If the next low takes out the August low, the downtrend will be confirmed.

CHART 2. SEMICONDUCTORS GET SLAMMED. A downward sloping trend, dip in the SCTR score, weakness in MACD, and declining relative performance with respect to the S&P 500 point to weakness in semis.Chart source: StockChartsACP. For educational purposes.

The StockCharts Technical Rank (SCTR) score dropped to single digits after enjoying a position above 90 for an extended period. SMH closed below its 200-day SMA, the Moving Average Convergence/Divergence (MACD) is turning lower with the MACD line crossing below the signal line, and the ETF’s relative performance with respect to the S&P 500 is falling. The technical picture is not pretty.

Bonds, Oil, Crypto  

After the jobs report, Treasury yields dropped, with the 5-year yield lower by 1.44%, 10-year lower by 0.56%, and the 30-year lower by 0.07%. For the 5- and 10-year Treasuries, these are the lowest levels in a year.

Commodities also suffered, especially crude oil, which has been sliding since April. The United States Oil Fund (USO) may not have hit its yearly low like the crude oil futures, but it is getting close.

Bitcoin ($BTCUSD) is close to the lower channel of its gently sloping downtrend (see chart below). A break below this channel (dotted blue lines) could send the cryptocurrency towards 50,000 or lower. With the MACD showing weakening momentum, further decline is likely.

CHART 3. A BREAK BELOW THE LOWER TRENDLINE COULD SPELL TROUBLE FOR BITCOIN. If Bitcoin shows further weakness, it could fall much lower.Chart source: StockChartsACP. For educational purposes.

One chart I’ll be watching closely is the CBOE Volatility Index ($VIX). On a significant selloff day, I expected VIX to spike as much as it did on August 5. That it didn’t could mean more volatility lies ahead. This could send the VIX higher and higher, and might be a warning signal of further selling. That makes this something to watch very closely.

Why is the US dollar up? That’s a big question mark and something to ponder over the weekend as we prepare for next week’s inflation numbers. Expect more choppiness next week.

End-of-Week Wrap-Up

S&P 500 closed down 4.25% for the week, at 5408.42, Dow Jones Industrial Average down 2.93% for the week at 40,345.41; Nasdaq Composite closed down 5.77% for the week at 16,690.83$VIX UP 12.46% for the week closing at 22.38Best performing sector for the week: Consumer StaplesWorst performing sector for the week: TechnologyTop 5 Large Cap SCTR stocks: Insmed Inc. (INSM); Cava Group (CAVA); FTAI Aviation Ltd. (FTAI); SharkNinja, Inc. (SN); Coca-Cola Consolidated (COKE)

On the Radar Next Week

August Consumer Price Index (CPI)August Producer Price Index (PPI)August Export and Import PricesSeptember Preliminary Michigan Consumer Sentiment

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.

We are always on the lookout for chart patterns. We found a bearish head and shoulders developing on Semiconductors (SMH).

Looking at the daily chart below we can see the pattern developing. However, we do have to point out participation. Note the very low percentages on %Stocks > 20/50EMAs. These are clearly oversold readings and if we look back at the vertical green lines that mark cardinal price bottoms, you’ll note they were at these levels. One thing to keep in mind is that oversold conditions can persist in a bear market. SMH is down over 20% from the July top so we could see low readings for some time.

The Silver Cross Index is about to see a Bearish Shift across the signal line and that would give us a Bearish Bias in the intermediate term. It is already at a very low 36% reading suggesting how unhealthy this group is.

This head and shoulders pattern looks dangerous. Textbooks tell us that a break below the neckline would imply a downside move that is the height of the pattern. That would take price back down to 120.00. We doubt that will happen, but 160.00 doesn’t seem out of the question if this pattern executes.

Conclusion: Semiconductors (SMH) are in a bear market and are now forming a bearish head and shoulders pattern that would imply a drop well below 160.00. Given participation readings are very oversold, we aren’t so sure it will see that kind of devastation, but we definitely should be prepared for more downside from this group.

Introducing the new Scan Alert System!

Delivered to your email box at the end of the market day. You’ll get the results of our proprietary scans that Erin uses to pick her “Diamonds in the Rough” for the DecisionPoint Diamonds Report. Get all of the results and see which ones you like best! Only $29/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!

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Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

(c) Copyright 2024 DecisionPoint.com

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. 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.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

Helpful DecisionPoint Links:

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

Bear Market Rules

I’ve been around long enough to remember when Intel (INTC) was the NVIDIA of the day. Now INTC is under severe pressure, having suspended its dividend, and currently being considered for removal from the Dow 30 Industrial Average. Oh, how the mighty have fallen! With INTC having declined so much, we wonder if it is time to be bargain hunting this stock. Let’s look at charts in three time frames to find the answer.

The daily chart below shows it making new 52-week lows today. The daily PMO was rising above the signal line, but it has turned down, and the PMO is deeply below the zero line. INTC has been in a narrow trading range for about a month. If it were to break up out of that range, it might be considered as a buy candidate, but for now it doesn’t look promising.

The weekly chart doesn’t look any more promising. We can see that a line of support has been violated, and that the weekly PMO is falling well below the zero line. No encouragement here.

Finally, the monthly chart shows that a very long-term support line has been violated, and the monthly PMO is falling below the zero line. INTC has just entered a zone of congestion wherein it may find support, but the potential is for price to fall to 7.50.

Conclusion: So, to answer our initial question, no, there are no signs in any of the three time frames that now is the time to be buying this stock. Probably the first sign that it may be time to consider an entry would be when the daily PMO turns up, accompanied by positive price action. Gradually adding to the position could take place as we see similar signs in the weekly and monthly time frames.

Introducing the new Scan Alert System!

Delivered to your email box at the end of the market day. You’ll get the results of our proprietary scans that Erin uses to pick her “Diamonds in the Rough” for the DecisionPoint Diamonds Report. Get all of the results and see which ones you like best! Only $29/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!

Learn more about DecisionPoint.com:

Watch the latest episode of the DecisionPointTrading Room on DP’s YouTube channel here!

Try us out for two weeks with a trial subscription!

Use coupon code: DPTRIAL2 Subscribe HERE!

Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

(c) Copyright 2024 DecisionPoint.com

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. 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.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

Helpful DecisionPoint Links:

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

Bear Market Rules

On Thursday afternoon, I dove into the StockChartsTechnicalRank (SCTR) Reports to scout out a good ETF during a mixed market (Dow and S&P 500 were down, Nasdaq was up).

Two gold miner ETFs—Wisdom Tree Efficient Gold Plus Gold Miners ETF (GDMN) and iShares MSCI Global Gold Miners ETF (RING)—caught my eye. Both had high SCTR scores of 99.9 and 99.6, respectively.

THE SCTR REPORT FOR US ETFs.

Everyone’s been talking about gold since it started climbing back in October 2022. But gold mining companies? Not so much.

Does this present an opportunity for investment, given ongoing geopolitical tensions, central bank demand, and the much-anticipated Fed rate cuts? Possibly.  But let’s dig deeper to try to get a deeper technical view as to what’s going on. 

Comparing GDMN to RING (and Gold)

First, GDMN and RING share a few of the same companies, but overall, they have different holdings. Let’s compare the performance of both companies and, out of curiosity, see how both compare to gold.

Open the StockCharts PerfCharts (under Member Tools or Charts & Tools) and enter GDMN,RING,$GOLD in the symbols box.

If you set the time parameters to one year, you get something like the chart below.

CHART 1. PERFCHART OF GDMN, RING, AND GOLD. GDMN is the red line, RING, the blue line, and gold, the green line. Chart source: StockCharts.com. For educational purposes.

Notice how both miners started outperforming gold in April, with GDMN leading the pack. But if you follow gold’s seasonality context, you know that the yellow metal dips in the summer before making a big move in the fall.

That’s gold. But what about gold miners? Let’s check the Dow Jones Gold Mining Index ($DJUSPM).

Under Charts & Tools, select Seasonality and enter $DJUSPM in the symbol box.

CHART 2. FIVE-YEAR SEASONALITY CHART OF DOW JONES GOLD MINING INDEX.  The number at the top of the bar indicates higher-close %, while the numbers at the bottom indicate average % return.Chart source: StockCharts.com. For educational purposes.

Over the last five years, August and September were the weakest months for gold miners. November and December both notched second best. March and April were the most outstanding months.

Gold demand has climbed over the last five years. Given the current economic and geopolitical context, how these numbers will pan out is unclear. But you have to check the price action if you’re bullish gold miners—and miners’ technical readings are outstandingly bullish right now.

Analyzing GDMN and RING

Are GDMN and RING the best mining indexes to trade? Both have high SCTR scores, and we know that gold miners, in general, have been on a steady rise.

But look at their trading volumes. In the Symbol Summary tool, type in each symbol.

GDMN has an incredibly low volume of 628 (no market cap listed)RING’s volume is a little better, with 41,863 and a market cap of 517M

Gold mining ETFs generally have low liquidity, making them difficult to trade. A better and more liquid representation of gold miners is the VanEck Vectors Gold Miners ETF (GDX), which has a market cap of $13.66B and an average trading volume of around 7,259,656.

Let’s analyze its daily chart.

CHART 3. DAILY CHART OF GDX. Note the clear trend swing points.Chart source: StockCharts.com. For educational purposes.

First, notice that the SCTR reading has been well above the 90 line (see green rectangle in the top panel), indicating extreme bullishness across several indicators and timeframes. The Chaikin Money Flow (CMF) has been rising since July, indicating strong buying pressure.

The Ichimoku Cloud has been a reliable indicator of support since GDX established a near-term uptrend in March. As GDX is now touching the cloud (the ETF is a candidate in the Entered Ichimoku Cloud predefined scan), it might signal a favorable entry point.

More importantly, the ZigZag line, highlighting GDX’s swing points, is key to determining the trend and entry and stop loss levels. Basically, if an uptrend is defined as higher highs and higher lows, then for GDX’s uptrend to remain valid, it has to eventually break above $40, its most recent swing high, and it can’t close below its most recent swing low of $34 (see orange circles).

At the Close

SCTR reports can be a powerful starting point for spotting market opportunities. In this case, the report led me to gold miners, but finding a truly tradable option—like GDX—required some extra research. SCTR points you in the right direction, and, with a little homework using additional StockCharts tools, you can uncover attractive trading opportunities.

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.

When the stock market is hobbling along, trying to determine whether the recent jobs and manufacturing data are good or bad for the economy, it’s easy to miss some of the stocks that could make intermediate-term profitable returns.

One stock that has shown strong technical strength in the last couple of days is Tesla, Inc. (TSLA). I noticed TSLA stock entered the StockCharts Technical Rank (SCTR) Reports top 5 in the Large Cap, Top Up category. When an actively-traded stock like TSLA pulls back almost 30% and shows signs of recovery, it’s time to pay attention.

FIGURE 1. DAILY SCTR REPORTS SHOW TSLA IN THE TOP 5 OF THE TOP-UP, LARGE-CAP STOCKS.Image source: StockCharts.com. For educational purposes.

Tesla Stock Analysis

While the rise in Tesla’s stock price can be attributed to news of the company launching self-driving assistance software, it’s worth analyzing TSLA stock from a technical perspective. If there’s enough momentum behind the stock price rise, it could make for a profitable intermediate-term trade.

We’ll start with an analysis of the weekly chart of TSLA (see below).

FIGURE 2. TSLA STOCK ANALYSIS ON A WEEKLY CHART. TSLA is trading between its 50- and 200-week moving average. Its RSI is rising gradually, as is its relative performance against the S&P 500.Chart source: StockChartsACP. For educational purposes.

TSLA is trading between its 50- and 200-week simple moving averages (SMA). Both SMAs indicate that the weekly trend in TSLA stock is relatively flat. However, the SCTR score is rising, and the relative strength index (RSI) is displaying a gentle upward slope. The relative strength of TSLA with respect to the S&P 500 ($SPX) has been weakening. If the line breaks above the downward-sloping red-dashed trendline (see bottom panel), from a weekly perspective, the stock could rise further. TSLA’s stock price was in the $400 area before its decline.

Is it worth buying the stock now? Let’s analyze Tesla’s daily price action (see below).

FIGURE 3. DAILY CHART ANALYSIS OF TSLA STOCK PRICE. Tesla’s stock price is still above its August 20 high, but momentum needs to be stronger. Look for MACD to start moving higher.Chart source: StockChartsACP. For educational purposes.

The following are some points to note:

TSLA is trading above its 21-day exponential moving average and 50-day SMA.The short-term uptrend from the August low is still valid.The Chaikin Money Flow (CMF) indicator is in positive territory, which suggests that there is more buying than selling pressure.The Moving Average Convergence/Divergence (MACD) oscillator displays relatively weak momentum.

When Should You Buy TSLA?

Since TSLA’s stock price is news-related, it’s best to thoroughly analyze the chart before deciding when to enter a long position. The following are a few points to consider:

Can TSLA take out its August 20 high? If it does, then you have signs of an uptrend (higher highs and higher lows). If not, look to see where the stock price establishes its next low. If it goes below the upward trendline, then the uptrend condition is violated.Although the CMF shows more buying pressure, it’ll have to move higher to levels similar to the jump from July 1 to July 10.The MACD must cross into positive territory and move higher, like in July.Last, but not least, the SCTR score needs to remain above 70.

When Should You Exit TSLA?

Let’s assume the upward trend continues with strong volume and momentum. If you were to open a long position above $228 (August high), then, on your chart, use the Annotations tool to add Fibonacci Retracement levels from a recent low and high. Use these levels to help determine entry and exit points.

The bottom line. Add the daily and weekly charts of TSLA to one of your StockCharts ChartLists. Watch the price action and determine if it’s worth entering a trade. Before entering the trade, know how much you’re willing to lose on the trade and set your stop loss levels and profit targets. Set StockCharts Alerts to notify you when specific price levels are hit. You never want to marry a stock. It’s a numbers game.

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 exclusive StockCharts TV video, Joe shares how he identifies and trades a reversal pattern. Highlighting what causes him to focus in on a stock, he shares the 1-2-3 reversal pattern, along with the keys in MACD and ADX that allow you to improve the risk/reward equation in your trade. Joe also answers a viewer’s question on how rotation takes place. Finally, he goes through the symbol requests that came through this week, including MCD, NVDA, and more.

This video was originally published on September 4, 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 have discussed many times, financial markets are fractal. Different timeframes produce similar price structures. This is a very valuable phenomena for the study and practice of trading. When tracking the intraday time frame; Wyckoff structures of Accumulation, Markup, Distribution and Markdown repeat over and over. This creates a laboratory for study and analysis. Below is just such a case study. By paying attention to the intraday charts, the Wyckoffian often identifies setups brewing in the larger timeframes. The market’s intention in the larger picture is often first revealed in the intraday.

S&P 500 Index, Intraday 30-Minute Timeframe

Chart Notes

1.      The upward stride of the $SPX (30-minute timeframe) accelerated into Preliminary Supply (PSY) creating a local climactic event.

2.      The continuation of momentum carried the index into a Buying Climax (BC). Note the poor quality of the rally from the PSY to the BC. Supply is present!

3.      The Automatic Reaction was sudden and deep with expanding volume. Large sellers were present and motivated to reduce their holdings.

4.      The BC is critical Resistance and the AR is Support in the newly formed range-bound structure.

5.      A Cause was being built from the PSY to the Last Point of Supply (LPSY) that had the character of Distribution. Volatility on weakness to the Support line tipped off the presence of active selling and supply. Volume expanded during the second half of the Distribution structure. More Supply, Supply, Supply!

6.      A Last Point of Supply (LPSY) completed the Distribution which was confirmed by the immediate gap reversal and expanding spread on the return to the Support line. This volatility supported the conclusion that Distribution was complete and Markdown was the next phase. The decline below Support confirmed Markdown in progress.

7.      Downtrends, even small versions, are typically volatile with large up and down swings. They are ideal for study purposes, while only the most accomplished traders should consider campaigning them.

S&P 500 Index, 1-Box Method, 15 Minute Data, ATR Scale (12.51 pts)Distribution is a Cause building process for the next trending move of the index, which is expected to be downward. A 15-minute Point & Figure chart with ATR Scaling is used to estimate the potential for the extent of the subsequent decline. With this 1-Box reversal PnF chart we identifed two count segments. Counting from right to left the count was taken from the Last Point of Supply (LPSY) to the Buying Climax (BC) and to the Preliminary Supply (PSY). Two count estimates were generated: 5,366.75 and 5,291.73.

Chart Notes

1.      Using the vertical chart of the Distribution and the chart analysis and then identifying those points on the PnF, two counts were taken. The lower objective estimate suggested that the decline could take back the rally from August 14th to the BC high on August 22nd. So, volatility could ensue as there is little natural support to those lower objective levels.

2.      Volume was quite high into the PSY and the BC, which indicated active selling on a scale up by the Composite Operator (C.O.) community. Thereafter, C.O. selling was persistent at the 5,642.01 Resistance level. Note that volume expanded throughout the second half of the Distribution. This further confirmed the Distribution hypothesis.

3.      Supply engulfed the index as it fell out of the Distribution, and this can be seen in the very high downside volume. A rally into the underside of the prior Support zone is possible. Selling would be expected to continue from under the old Support zone.

4.      How, and if, the index approaches the PnF price objectives will tell much about the subsequent intention of the $SPX index. The stock market is always an unfolding picture.

This intraday structure is a Tempest in a Teapot for its small size in time and potential extent of the move. This is valuable training and good practice for a Wyckoffian. Please take the time to zoom out to the larger daily and weekly charts to study the greater picture. As they are fractal, your practice will speed the learning curve. And your path to mastery.

All the Best,

Bruce

@rdwyckoff  

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. 

Wyckoff Resources:

Distribution Definitions (Click Here)

Wyckoff Power Charting. Let’s Review (Click Here)

Additional Wyckoff Resources (Click Here)

Wyckoff Market Discussion (Click Here)

Event Announcement:

TSAA-SF Annual Conference (to learn more CLICK HERE)

Old School / New School.

Conference Themes will range from Artificial Intelligence to Reminiscences of a Stock Operator.

In-person in San Francisco and Livestreaming for dues paying members.

Saturday September 14th at Golden Gate University

The TSAA-SF annual conference will be held on Saturday Sept 14th 2024 at Golden Gate University. It is an all day hybrid event, held both in person and via zoom. This year’s speakers include:

 * John Bollinger, CFA, CMT – Creator of Bollinger Bands, Author, Investor

 * Linda Raschke – Author of “Trading Sardines” Trader/Investor

 * Damon Pavlatos – CEO of Future Path Trading LLC & PhotonTrader

 * Dave Landry – Trader, Author, Speaker, Educator, Founder of DaveLandry.com

 * Robert Schott – Expert in Global Investments, Strategy, Risk, Derivatives, & ALM

 * Patrick Dunawila, CMT – Technical Analyst, Co-Founder of The Chart Report

 * Mike Jones – Data Engineer & Analytics Consultant

In early 2024, MicroStrategy (MSTR) became a meme stock favorite thanks to its close ties to Bitcoin. If you rode the hype to its peak in March, hopefully you cashed out before hedge funds began shorting it heavily and going long Bitcoin instead.

How would you have known that hedge funds would begin plunging the stock? Like most traders, you probably wouldn’t have direct access to this type of information before it’s too late. But you’d have indirect information from institutional investors’ “footprints” in the market.

Tracing the Impact of Hedge Fund Shorting in MSTR

Pull up your SharpCharts platform, type MSTR in the symbol box, and look at its price action in March. It peaked at $200 a share, which is when hedge funds began shorting the stock.

In the Overlays section below the price chart, add the 200-day simple moving average (SMA). Even though MSTR’s intermediate-term trend is down, its long-term trend is still up, yet it’s currently being challenged.

Clues That Smack of Heavy Short Selling

Here’s what I’m looking at—my complete chart (which you can follow or customize yourself by clicking on this link).

DAILY CHART OF MSTR STOCK. The footprints of hedge fund activity were evident in the divergence between price and momentum.Chart source: StockCharts.com. For educational purposes.

Look at the blue lines in the lower panels that follow the contours of the price action, Relative Strength Index (RSI), and the Chaikin Money Flow (CMF). You may not have had knowledge of hedge fund shorting activity, but the traces of their actions are evident in the divergence between price action and momentum.

The jump from $49 to $200 in just over a month screams meme momentum. But what momentum? The RSI tells you that those three consecutive higher swing points from the end of February to the March peak are overbought, with momentum dropping off. The CMF also shows that buying pressure is declining as the price keeps moving higher.

The Ichimoku Cloud is plotted to measure the intermediate-term trend and momentum. As you can see, the first bounce after the March decline (see orange circle) was met with buying at the 61.8% Fibonacci Retracement line. The second and third took place at the 200-day SMA.

Despite the volatility, the intermediate trend is sideways, and the momentum is flat. For the long-term uptrend to hold, the price needs to stay above the 200-day SMA—and that’s being tested.

Closing Bell

Here’s the takeaway: Some fundamental developments aren’t always easy to spot. Most investors wouldn’t have caught certain hedge funds’ short-selling moves in MSTR stock. That’s where technical indicators save the day. In this case, it was all about divergence. You can also rely on other indicators to catch trends before they’re obvious. Use the StockCharts tools listed in the Member Tools section of Your Dashboard to stay ahead with timely, actionable insights.

Last but not least, be sure to save MSTR in one of your StockCharts ChartLists.

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.

I hope you had a relaxing, restful long weekend, and welcome to September.

It was a pretty dismal post-Labor Day trading session. We all know September is the worst for stocks, but let’s hope the first day’s action doesn’t foretell how the rest of it will play out. All the broader equity indexes are down, with the Nasdaq taking the biggest hit. The Nasdaq Composite ($COMPQ) and Nasdaq 100 Index ($NDX) closed lower by over 3%.

The StockCharts MarketCarpet was a sea of red, with technology stocks leading down. Some pockets of strength can be seen in Consumer Staples, Real Estate, and Utilities, the leading sectors in Tuesday’s trading.

FIGURE 1. A SEA OF RED. The StockCharts MarketCarpet gives you a good idea of stock market action.Image source: StockCharts.com. For educational purposes.

Tuesday’s Manufacturing PMI was 47.2%, which is lower than expected. This suggests that manufacturing activity is contracting, which may have been the catalyst that led to the stock market selloff.

The daily chart of the S&P 500 ($SPX) below shows the index hit its 50-day simple moving average (SMA) and bounced off it. But what’s less discouraging is that it closed below its 21-day exponential moving average (EMA) and a consolidation range.

FIGURE 2. THE S&P 500 BREAKS BELOW ITS CONSOLIDATION RANGE. If momentum continues to slow, there could be more selling pressure in the near-term.Chart source: StockCharts.com. For educational purposes.

Overall, the pullback is still well above its August low, so, technically, Tuesday’s selloff isn’t as bad as it may seem. But it’s not all that great, either. The full stochastic oscillator in the lower panel shows declining momentum, so there’s a chance that the chart could get ugly.

Techs Tank

The Nasdaq Composite chart looks even worse. The index is flirting with its 100-day SMA and is below the 38.2% Fibonacci retracement level. The stochastic oscillator is also declining much steeper than for the S&P 500.

FIGURE 3. TECH STOCKS TANK. The Nasdaq Composite is flirting with the support of its 100-day moving average. The stochastic oscillator in the lower panel is in a steep decline.Chart source: StockCharts.com. For educational purposes.

The selling frenzy in Tech stocks isn’t new, especially in semiconductor stocks. Nvidia’s earnings weren’t good enough for the market, and Broadcom, Inc. (AVGO) will announce its earnings on Thursday. AVGO stock closed lower by over 6%, and NVDA closed over 9% lower. If Broadcom doesn’t report strong enough earnings, there could be more of a selloff in the Technology sector.

Of course, time will tell, but it’s worth watching the CBOE Volatility Index ($VIX), which rose 38.13%. That may seem high, but it’s not as high as the August 5 spike.

FIGURE 4. THE FEAR INDEX ($VIX) ROSE OVER 38% ON TUESDAY. A spiking VIX is something to watch since it indicates fear among investors, which means further selling could occur.Chart source: StockCharts.com. For educational purposes.

When the VIX starts spiking, it indicates nervousness is in the air. If a rising VIX keeps you up at night, it may be better to take some profits, especially in your most profitable positions. There’s a chance that investors may rotate out of mega-cap tech stocks and into other sectors such as Financials, Utilities, and Health Care.

But today’s market action isn’t showing strength anywhere. Precious metals, oil prices, and cryptocurrencies all fell. The only area that showed strength was the US dollar and bond prices, the latter due to a fall in Treasury yields.

Closing Position

There’s a chance the market could digest today’s Manufacturing PMI data and recover, but there are two factors that warrant cautious trading—a rising VIX and September’s seasonal weakness. Earnings from Broadcom, Inc. and Friday’s Non-Farm Payroll data will be critical variables.

Links to Charts in This Article

Daily chart of S&P 500.Daily chart of Nasdaq Composite.Daily chart of $VIX.

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.