The past sessions for the markets stayed quite trending; the headline index continued with its upmove. While extending their gains, the Nifty 50 Index ended the week on a very strong note. Witnessing a strong momentum on the upside, the markets expanded their trading range as well. The Nifty traded in a range of 393.65 points during the week and closed near its high point forming a fresh lifetime as well as a fresh closing high for itself. The volatility dropped a bit lower; the India Vix declined marginally by 1.18% to 13.39 on a weekly basis. While the markets rose in almost an unabated manner, the headline index posted a net weekly gain of 412.75 points (+1.66%). The month ended as well; Nifty posted a monthly gain of 284.75 points (+1.14%).

The markets are in a strong uptrend; however, once again it has created a situation wherein they have sharply deviated from their mean. This warrants a very careful approach towards the markets. The nearest 20-week MA is placed at 23.659 which is 1576 below the current close. The 50-week MA which is placed at 22104 is 3131 points below the current level. All these things point at the markets deviating from their mean once again; this leaves them prone to volatile profit-taking bouts once again at higher levels. This also highlights a need for vigilant protection of profits with every upmove that may take place as we travel with the trend.

Monday is likely to see a stable start to the day. The levels of 25400 and 25495 are likely to act as resistance points. The supports come in lower at 23900 and 23710 levels.

The weekly RSI is 75.03; it remains in a mildly overbought territory. The RSI shows a bearish divergence as it did not make a new high while the Nifty formed a fresh closing high. The weekly MACD stays bullish and remains above its signal line.

The pattern analysis of the weekly chart shows that the markets have taken out its immediate high of 25078; it is likely to continue trending higher while raising the support levels higher as well. Going by the derivatives data, the immediate short-term support has been dragged higher to 25000 levels; any violation of this point is likely to push the markets back into broad consolidation. The market breadth remains a concern; the breadth is not as strong as it should be otherwise if such strong trending moves are taking place.

All in all, there is nothing on the charts that suggests a correction in the markets. The ongoing uptrend is strong; the easiest thing one can do is to keep traveling the trend. However, at the same time, we should not disregard the fact that the markets are once again significantly deviated from their mean. It becomes all the more important that as we follow the trend, we do it very mindfully while guarding the profits vigilantly at higher levels. It would be prudent to keep actively trailing the stop-losses as that would help protect the bulk of the profits. The texture of the markets is a bit defensive; stocks from the PSE, Pharma, IT, FMCG, etc. are expected to do well. Overall, a selective and cautious approach is advised for the coming week.

Sector Analysis For The Coming Week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

Relative Rotation Graphs (RRG) show a distinctly defensive setup. The Nifty Pharma Index had rolled inside the leading quadrant in the previous week. This week, the IT and FMCG groups have also rolled inside the leading quadrant. These groups along with the Nifty Midcap 100 which is seen losing relative momentum are by and large expected to relatively outperform the broader Nifty 500 Index.

The Nifty Consumption Index which is in the weakening quadrant is rolling back towards the leading quadrant. Besides this, the Nifty Auto, PSE, and Realty indices are also inside the weakening quadrant.

The Financial Services index has rolled inside the lagging quadrant. The Nifty Bank Index, Infrastructure, PSU Bank, Metal, Commodities, and Energy groups are inside the lagging quadrant. Among these, the Energy, Commodities, and Infrastructure indices are showing some improvement in their relative momentum.

The Nifty Media index is inside the improving quadrant; however, it is seen losing its momentum.

Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

www.EquityResearch.asia | www.ChartWizard.ae

After Nvidia (NVDA) dropped after earnings this week, investors are once again reminded of the importance of the semiconductor space. I think of semis as a “bellwether” group, as strength in the VanEck Vectors Semiconductor ETF (SMH) usually means the broader equity space is doing quite well. Today, we’ll look at a potential topping pattern forming for the SMH, what levels would confirm a top for semiconductors, and what weakness in this key group could imply for our equity benchmarks.

Presenting the Dreaded Head-and-Shoulders Top Pattern

Ralph Edwards and John Magee, in their classic text Technical Analysis of Stock Trends, laid out the analytical process for defining a head-and-shoulders top. I’ve found that any price pattern like this consists of three important phases.

First, we have the “Setup” phase, where the price action begins to take on the appearance of a certain phase. This is when your brain tells you, “This is definitely a head and shoulders topping pattern.” In this case, we’re looking for a significant high surrounded by two lower highs, creating the appearance of a head and two shoulders.

We can clearly observe the setup phase on the chart of the SMH, with the June and July highs forming a somewhat nontraditional, but still valid, head. The lower peaks in March and August complete the picture. It’s worth noting here that, in each of those peaks, we can see a bearish engulfing pattern, serving as a wonderful reminder for longer-term position traders: ignore candle patterns at your own risk!

What Would Confirm This Topping Pattern for Semis?

But the setup phase only means there is a potential pattern forming here. Next we need the “trigger” phase, where the price completes the pattern by breaking through a key trigger level on the chart. For a head-and-shoulders top, that means a break below the neckline, formed by drawing a trendline connecting the swing lows between the head and two shoulders.

Using the bar chart above, that would suggest a neckline around $200, over $40 below Friday’s close. Another school of thought involves looking at closing prices only, for a cleaner perspective and more simple measurements.

Using closing prices, we get an upward-sloping neckline which currently sits just below the 200-day moving average around $215. In either case, until we break below neckline support, this is not a valid head-and-shoulders topping pattern. The third phase, which I call the “confirmation” phase, involves some sort of follow-through beyond the breakout level. This could mean another down close after the break, or perhaps a certain percentage threshold below that support level. And once all three phases are complete, then we have a valid topping pattern.

Gauging Potential Broad Market Impact

So let’s assume that semiconductors do indeed complete the topping pattern. What would that mean for the broader equity landscape?

As of Friday’s close, the SMH is up about 38.2% year-to-date. That compares to the S&P 500 (SPY) at +18.9%, the Nasdaq 100 (QQQ) with +16.2%, and the equal-weighted S&P 500 (RSP) at +12.1%. So semiconductors have certainly been a stronger leadership group in 2024. But what about since the July market peak?

Now we can see that, while the S&P 500 is almost back to its July peak, the Nasdaq is still 4% below that day’s close and semis are a full 11% below the market peak in July. And the equal-weighted S&P 500 is actually above its July peak already, speaking to the strength that we’ve observed in non-growth sectors off the early August low.

There is no doubt that semiconductors are looking a bit vulnerable after Nvidia’s earnings this week. But given the strength that we’re seeing outside of the semiconductor space over the last two months, weakness in the SMH does not necessarily mean weakness for stocks. Remember that it’s always a good time to own good charts!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.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.

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.

In this StockCharts TV video, Mary Ellen reviews the broader markets, including NASDAQ weakness, and the outperformance in the equal-weighted S&P 500. She examines NVDA and shares how you should trade the stock depending on your investment horizon. Last up, Mary Ellen reveals top stocks in leadership areas.

This video originally premiered August 30, 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.

It’s a quiet end to August, with the broader stock market indexes wavering higher and lower. The Market Overview panel on the StockCharts Dashboard shows equity indexes closing higher. And yes, the Dow Jones Industrial Average ($INDU) closed at a record high.

FIGURE 1. MARKET OVERVIEW PANEL IN THE STOCKCHARTS DASHBOARD. All broader indexes were up on Friday.Image source: StockCharts.com. For educational purposes.

Stock Market Outlook

With August behind us, we now prepare for one of the worst months in the stock market. PCE data came out today, and it was pretty much in line with estimates. This means an interest rate cut in the next FOMC meeting is pretty likely. The Fed’s next meeting isn’t until September 18, and, given historical seasonality patterns, don’t expect too much upside in the first half of the month.

FIGURE 2. SEASONALITY CHART OF THE S&P 500 INDEX ($SPX). September is usually a weak month for large-cap stocks. Image source: StockCharts.com. For educational purposes.

The seasonality chart for the S&P 500 shows that August typically sees a 1% rise in the index. In 2024, the index’s performance was slightly higher, with a 2.28% rise. September looks dismal, but this is an election year, so things may turn out differently.

The S&P 500 has recovered from its August pullback, breaking a downtrend line (see chart below). Since then, the index has been trading sideways, refusing to reach its July 16 all-time high. Yet it’s trading above its 21-day exponential moving average, which is trending up.

FIGURE 3. DAILY CHART OF S&P 500 INDEX. The index is trading sideways, close to its all-time high. The Stochastic Oscillator indicates that momentum is slowing slightly.Chart source: StockCharts.com. For educational purposes.

The stochastic oscillator is displaying some slowdown in momentum, as the oscillator shows a slight decline amidst the relatively flat movement in the S&P 500.

More interesting is the S&P 500 Equal Weighted Index ($SPXEW), which hit all-time highs. The relative strength index (RSI) and moving average convergence/divergence (MACD) indicate there could be room to rally. This suggests that investors are rotating out of the mega-cap stocks and into smaller-cap ones.

FIGURE 4. WEEKLY CHART OF S&P 500 EQUAL-WEIGHTED INDEX. The index is at a new all-time high. The RSI and MACD indicate there’s room for more upside move.Chart source: StockCharts.com. For educational purposes.

This begs the question of how mid-cap stocks perform. The daily chart of the S&P 500 Mid Cap Index ($MID) shows that mid-caps are trading sideways, but the index is close to its all-time highs, which happen to be close to the upper end of the trading range.

FIGURE 5. S&P 500 MID-CAP INDEX ($MID). The index is trading sideways but is trading close to the top of the range. Market breadth is also expanding, favoring bulls.Chart source: StockCharts.com. For educational purposes.

Market breadth in the mid-caps looks to be broadening, with 73.25% of mid-cap stocks trading above their 50-day simple moving average. The advancers also outnumber the decliners.

You’ll likely find a similar situation with the S&P 600 Small Cap Index ($SML).

Stockchart Tip!

Click the above chart of $MID and change the symbol to $SML. Voila! You’ll get an updated chart specific to $SML.

So, which stocks in the mid and small-cap asset class should you focus on? This is when it helps to revert to the seasonality chart. Going through all the sector ETFs, Energy, and Utilities tend to be the leaders in September. Out of the two, the chart of Utilities Select Sector SPDR (XLU) shows a well-defined trend.

CHART 6. DAILY CHART OF XLU. Utilities have been in a sharp uptrend. The RSI and MACD indicate there’s room for more upside. Chart source: StockCharts.com. For educational purposes.

All moving averages overlaid on the chart are trending higher. The RSI and MACD also support the upward trend.

Closing Bell

So, while large-caps typically decline in September, it makes sense to consider investing a portion of your portfolio in mid and small-cap utility and energy stocks.

On Your Dashboard, click the Sector Summary link (bottom right of Sector Summary panel).Select One Month from the Period dropdown menu.Click Utilities Sector Fund in the Name column.Click the name of the top-performing Industry within the sector.Sort the columns by Universe (U column) by clicking the up and down arrows to the right of U.Scroll down to the mid-cap stocks and analyze away.

Enjoy your Labor Day weekend, and be ready for market action to resume on Tuesday.

End-of-Week Wrap-Up

S&P 500 closed up 0.24% for the week, at 5648.40, Dow Jones Industrial Average up 0.94% for the week at 41,563.08; Nasdaq Composite closed down 0.92% for the week at 17713.62$VIX down 5.42% for the week closing at 15Best performing sector for the week: FinancialsWorst performing sector for the week: TechnologyTop 5 Large Cap SCTR stocks: Insmed Inc. (INSM); FTAI Aviation Ltd. (FTAI); Carvana Co. (CVNA); SharkNinja, Inc. (SN); Tenet Healthcare Corp. (THC)

On the Radar Next Week

Aug ISM Manufacturing PMIAug S&P Global Services PMIAug ISM Services PMIAug Non Farm PayrollsFed Beige Book

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.

It’s All Still Relative

The weekly Relative Rotation Graph, as it looks toward the close of this Friday (8/30) shows a clear picture — out of Technology, into everything else.

Simple enough, right? However, this is a relative comparison, so it only tells us whether a sector is in a relative up- or downtrend or whether its relative trend is improving or weakening. This means that when SPY starts to move lower, these sectors will likely outperform SPY, but their prices will still go down.

When just looking at the JdK RS-Ratio value as a gauge, there are only two sectors on the right-hand side of the graph with a reading above 100. These are Real Estate and Utilities. All other sectors are below 100 on the RS-Ratio scale and, therefore, technically still in a relative downtrend vs. SPY.

However, except for XLK, all these other sectors are on a positive RRG-Heading, between 0 and 90 degrees, which is a positive takeaway. There is still a risk that these tails may roll over while still inside the improving quadrant and continue their relative downtrend, but XLV, XLF, and XLP are looking especially strong, as they are getting close to crossing over into the leading quadrant.

XLY, XLI, XLB, and XLE are still too low on the RS-Ratio scale for consideration, imho.

SPY is Hitting Resistance

SPY pushing against resistance is creating an interesting situation. 565 is clearly a very important overhead resistance level for SPY. Only when this barrier can be convincingly broken will there be new upside potential for SPY to continue the longer-term uptrend. However, it is questionable whether SPY can break that barrier without the help of the technology sector. At the end of the day, that is now more than 30% of the total market capitalization of the S&P 500.

Over the last few weeks, SPY started to trade in a range between 555 and 565. When 555 gives way to the downside, significant downside risk will be unlocked, targeting the recent gap area between 545-548, followed by intermediate support around 537.5-540 and then 510, which is the level of the last major low.

Given the importance of the tech sectors in the current environment, I see the risk of a break below 555 as greater than the potential of a break above 565.

Semis / Tech Are Key

So, the tech sector, and especially the group semiconductors, will play an important role in the coming weeks to determine the faith direction of the general market.

This RRG shows the members of the Technology sector. The big elephant NVDA is clearly visible inside the weakening quadrant and rotating toward the lagging quadrant at a negative RRG-Heading.

The semiconductors and semiconductor equipment group is now the largest industry inside the technology sector, weighing more than 40%. NVDA itself is now the second-largest stock in the technology sector, with a weight of 20%. So when it moves, it moves, making the industry and the sector move.

NVDA is BIG, But Not the Only Semiconductor Stock

When I isolate the semiconductor stocks on the RRG, we see this image:

Most of these stocks are moving in the same direction as NVDA, on a negative RRG-Heading, weighing in on the industry and then on the sector. However, this is an extremely important group of stocks that deserves at least a minimal allocation in each portfolio “just in case it all turns around and starts to go up again.” From that perspective, it makes sense to look for alternatives as long as NVDA is rotating on a negative heading, digesting its recent gains and relative outperformance.

Searching for stocks on a positive RRG-Heading provides a few potentials.

Combining the positions on the RRG and looking at the individual charts. MPWR and TXN could be interesting alternatives if NVDA maintains its negative RRG-Heading.

#StayAlert and have a great weekend. –Julius

Financial sector stocks are at an all-time high, fueled partly by earnings beats, a favorable and higher interest rate environment, and sector sentiment. Investors are seeing value buying opportunities in many beaten-down financial stocks. Should you follow their lead?

According to Fed Chief Powell’s latest remarks, rate cuts are on the horizon. Lower interest rates can cut both ways, narrowing net interest margins and pressuring bank earnings while boosting the broader market and lifting stocks, including financials.

When navigating such fundamental uncertainty, it helps to step back and consider the broader patterns at play. Consider seasonal trends and how technical price action might inform your short-term strategy. Let’s start with seasonality.

5-Year Seasonality Chart of XLF

The StockCharts seasonality chart can help you identify how XLF performs each month and the average price change (see below).

CHART 1. FIVE-YEAR SEASONALITY PROFILE FOR XLF. Note September’s negative performance.Chart source: StockCharts.com. For educational purposes.

The numbers above the bar signify the percentage of higher closes. The numbers at the bottom of each bar signify the average % return for the time period being analyzed — in this case, five years.

Key points from the XLF seasonality chart are as follows:

September is the worst month for XLF, averaging zero higher closes over the last five years with a return of -4%.October, November, and December make up XLF’s strongest quarter with a higher-close rate of 50% and 75% and an average return of 4%, 7.2%, and 2.4%, respectively.

That’s the seasonality profile over the last five years, and the recent economic environment weighs in heavily on the data. But what happens if you zoom out to 10 years, which includes economic activity before the pandemic and inflationary pressures that shaped the last five years?

10-Year Seasonality Chart of XLF

CHART 2. 10-YEAR SEASONALITY PROFILE FOR XLF. September’s still a doozy.Chart source: StockCharts.com. For educational purposes.

Accounting for the sector activity before the economic challenges that came about during and after the pandemic, you can see that September is still an awful (though not the worst) month for XLF, raking in an average return of -1.6% with a higher-close rate of only 22%.

Like the five-year profile, October through December still comprises the strongest quarter, with November standing out as the strongest month with an 89% higher close rate and an average return of 6.2%.

Looking at these seasonality profiles, should you anticipate September’s weakness as a potential bullish setup for a strong fourth quarter?

Financials—A Sector Breadth Perspective

It helps to analyze the financial sector in terms of breadth and assess how many financial stocks within the ETF are participating in the uptrend versus those that aren’t. Below is a chart of the S&P Financial Sector Bullish Percent Index ($BPFINA) and XLF.

CHART 3. S&P FINANCIAL SECTOR BULLISH PERCENT INDEX. This indicator is entering oversold territory but can remain above 70 for an extended period if XLF continues trending higher.Chart source: StockCharts.com. For educational purposes.

StockCharts Tip!

To recreate the chart, click on the above chart or follow these steps.

Enter the symbol, in this case $BPFINA, in the symbol box. Select your preferred chart settings, such as chart style, time frame, log scale, etc. Enter horizontal line overlays using different parameters, i.e., 70, 50, and 30. Under Indicators, select Price from the dropdown menu, enter XLF in the parameters box, and position it above, below, or behind the BPI.

As XLF continues to trend higher (see price chart above the BPI chart), the financial sector as a whole is also entering overbought territory, according to the Bullish Percent Index (BPI).

Generally, a BPI line above 50% favors the bulls, while below 50% favors the bears. However…

A rise from below 30% (oversold) indicates potential bullishness.A decline from above 70% (overbought) suggests bearishness.

If the seasonality trend plays out, what might you anticipate in the weeks ahead? Let’s shift to the daily chart of XLF.

A Closer Look at XLF’s Daily Price Action

CHART 4. DAILY CHART OF XLF. No signs of stopping, yet note the divergence in CMF momentum.Chart source: StockCharts.com. For educational purposes.

In a nutshell:

XLF shows no sign of slowing, yet the near-term surge is going parabolic.The Chaikin Money Flow (CMF) shows that buying pressure is picking up, but note the divergence between it and the price trend, suggesting that momentum may or may not be sufficient to fuel a continued rise.Price is hugging and nearing the top of the Bollinger Bands; price tends to revert back toward the middle, which, coincidentally, will likely meet the “kumo” level of the Ichimoku Cloud indicator.

In short, it’s a wait-and-see moment. XLF’s entry into overbought territory, coupled with declining momentum, aligns with the seasonal tendency for September’s weakness. If a dip occurs and the fundamentals remain stable, a pullback toward the middle Bollinger Band or the “cloud” could present a strong buying opportunity.

Closing Bell

XLF is riding high (like, very high), but with September’s seasonal weakness and its low-momentum entry into overbought territory, it’s important to remain cautious. Keep an eye on how financial stocks perform in the coming weeks. If the anticipated dip happens and fundamentals stay solid, this could be your chance to buy in before the expected Q4 strength kicks in.

Be sure to save XLF 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.

The thin trading ahead of Labor Day weekend is here. Despite that, on Thursday, the Dow Jones Industrial Average ($INDU) notched a record-high close. The S&P 500 ($SPX) was flat, and the Nasdaq Composite ($COMPQ) closed slightly lower.

Both indexes traded higher for most of the trading day, but it seemed that traders sold off on the rally in the afternoon and packed off early to take advantage of the last long summer weekend. Nvidia’s earnings are out, and all that’s remaining is Friday’s PCE Index. Since the Fed has already indicated that rate cuts are on the board, maybe the PCE isn’t such a big deal. Expect a slow day on Friday.

A Closer Look at Stock Market Action

It was an unusual day in the stock market. Since the Dow Jones Industrial Average closed at a record high, the Industrial sector did well. But Tech stocks, for the most part, didn’t fare as poorly as you may have expected. Apple (AAPL) was up 1.46% and Microsoft (MSFT) closed higher by 0.61%. But Nvidia’s 6.38% loss was the one that dragged down the Tech sector, putting it in last place in sector performance (see below).

FIGURE 1. STOCKCHARTS MARKETCARPET FOR AUGUST 29. Energy, Financials, and Utilities take the lead.

The good news is the Financial sector continues to hold up, with PayPal (PYPL) leading in performance with a 3.88% gain. Visa (V) and Mastercard (MA) saw gains of 1.91%. The underperformer was T Rowe Price (TROW) with a 2.37% decline.

Thursday’s top-performing sector was Energy, with Exxon Mobil (XOM) and Chevron (CVX), the two largest stocks in the sector by market cap, trading higher. XOM was up 1.38%, and CVX was up 0.97%.

The rise in crude oil prices may have been the catalyst that helped the Energy sector. The Market Overview panel in the StockCharts Dashboard shows that, except for copper, commodity prices rose. Oil, Natural Gas, and Gasoline prices rose well over 1%.

Going back to Thursday’s MarketCarpet, even though NVDA closed lower by over 6%, other chip stocks did well. This reflects that the AI boom is still in play. Overall, the stock market remains healthy, with expanding market breadth and low volatility. The stock market will see higher trading volume from next week. In the meantime, follow the broader indexes, start building ChartLists of the different sectors, and download a few of the StockCharts free ChartPacks.

StockCharts Tip.

ChartPacks are a great way to get started with building ChartLists and exploring what Technical Analyst experts typically view before, during, and after market hours.

At the Close

A quick glance at Your Dashboard daily will keep you engaged with the stock market. Follow the market action in the broader equity indexes, bonds, commodities, and cryptocurrencies. From the Sector Summary, identify which sectors are performing well and which aren’t. The SCTR Reports and Market Movers can help you identify the strongest and weakest stocks.

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 edition of StockCharts TV‘s The Final Bar, Dave breaks down key sector leadership themes and why growth stocks like Nvidia continue to take a back seat to value-oriented sectors. He speaks to the inverted yield curve, performance of the equal-weighted S&P 500 vs. the Magnificent 7 stocks, the three Mag7 names most important to watch into September, and three charts that demonstrate the true value of technical analysis for position traders.

See Dave’s chart showing the 10-Year Treasury Yield and yield curve inversion here.

This video originally premiered on August 29, 2024. Watch on our dedicated Final Bar page on StockCharts TV!

New episodes of The Final Bar premiere every weekday afternoon. You can view all previously recorded episodes at this link.

In this edition of StockCharts TV‘s The Final Bar, Dave recaps a brutal day for retailers as ANF, FL, and BBWI drop on earnings misses. He also highlights the bullish primary trend for hold, shares two breakout names in the consumer staples sector, and breaks down key names in the technology sector as the market braces for earnings from NVDA, CRWD, and CRM.

This video originally premiered on August 28, 2024. Watch on our dedicated Final Bar page on StockCharts TV!

New episodes of The Final Bar premiere every weekday afternoon. You can view all previously recorded episodes at this link.

Today’s MarketCarpet was a sea of red with just a few dabs of green. Financials took the lead, followed by Health Care and Utilities. 

FIGURE 1. A SEA OF RED. Today’s stock market action was dominated by selling pressure, but some sectors saw more buying.Image source: StockCharts.com. For educational purposes.

The Technology sector, yesterday’s leader, is at the bottom today. The three stocks with the largest market cap in this sector, Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT), sold off, with NVDA trading 2.10% lower. This is ahead of NVDA’s earnings, which were reported after the close. Even though NVDA beat estimates and provided strong guidance, the stock was extremely volatile, with more selling pressure.

Given that NVDA makes up about 7% of the S&P 500 ($SPX) and 8% of the Nasdaq Composite ($COMPQ), the indexes follow NVDA’s path. We’ll have to wait till tomorrow’s open to see if things settle down.

Finding Investment Opportunities

In the meantime, let’s pinpoint areas in the stock market that show stability. The one sector that stands out is Financials. In yesterday’s post, the focus was on the Financial Select Sector SPDR Fund (XLF), which continues to hit all-time highs. The Financials quadrant in today’s MarketCarpet shows that Discover Financial (DFS) led the pack with a 1.94% rise.

The daily chart of XLF below shows that XLF is trading above its 5-day exponential moving average (EMA) and its 20-day simple moving average (SMA).

FIGURE 2. DAILY CHART OF FINANCIAL SELECT SECTOR SPDR FUND (XLF). Relative to the SPDR S&P 500 Fund (SPY), XLF is starting to gain strength. The ETF is also trading above its one-week EMA and 20-day SMA.Chart source: StockChartsACP. For educational purposes.

Also, note that, relative to the SPDR S&P 500 Fund (SPY), XLF is gaining strength. It’s now outperforming SPY by a modest 1.06%.

While all the attention was on technology, communication services, and consumer discretionary stocks, financial stocks were quietly gaining strength. Given the next FOMC meeting is a few weeks away, XLF could continue rising higher. After Fed Chair Jerome Powell’s speech in Jackson Hole on August 23, where he suggested that the Fed is prepared to cut interest rates, XLF has consistently been hitting new all-time highs. With interest rate cuts expected this year—there’s a possibility of a target rate of 4.25%–4.5% by December according to the CME FedWatch Tool—think of how high XLF could go!

If you’re weary of investing in exchange-traded funds, consider selecting a handful of stocks in the Financial sector. Click the Financials header in the MarketCarpet to see the stocks in the sector.

FIGURE 3. FINANCIAL SECTOR MARKETCARPET. The largest squares represent the largest stocks by market cap, whereas the darkest green squares represent stocks with the largest gains.Image source: StockCharts.com. For educational purposes.

At the Close

The stock market can be extremely volatile, especially close to big earnings report releases. To avoid getting caught up in all the market noise, identify sectors that are showing stability. Right now, it may be the Financial sector. But that can change, so be flexible and, when you see things changing, be prepared to sell your positions.

StockCharts Tip.

Create a ChartList of the 11 sector ETFs StockCharts uses as sector proxies.

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.