Sector ‘Heat Map’ Shows Cooling Appetite for Risk

Every bull market has a certain life expectancy. Nobody knows how long this bull will live, but a look at the S&P 500 industry sector ‘heat map’ shows ‘graying around the temples’ as investors rotate out of higher risk industries.

A rising tide lifts all boats. This sounds cliché, but was certainly true in 2013.

The first chart below shows the Q4 2013 performance of the nine S&P 500 sector ETFs. Those nine ETFs are:

  • Industrial Select Sector SPDR ETF (NYSEArca: XLI)
  • Technology Select Sector SPDR ETF (NYSEArca: XLK)
  • Consumer Discretionary Select Sector SPDR ETF (NYSEArca: XLY)
  • Materials Select Sector SPDR ETF (NYSEArca: XLB)
  • Financial Select Sector SPDR ETF (NYSEArca: XLF)
  • Health Care Select Sector SPDR ETF (NYSEArca: XLV)
  • Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP)
  • Energy Select Sector SPDR ETF (NYSEArca: XLE)
  • Utilities Select Sector SPDR ETF (NYSEArca: XLU)
    The ETFs are sorted based on Q4 2013 performance.

More risky, high beta sectors (red colors) like technology and consumer discretionary were red hot in the last quarter of 2013.

‘Orphan & widow’ sectors (green colors) like utilities and consumer staples lagged behind higher risk sectors.

The first chart is a snapshot of a healthy overall market. No wonder the S&P 500 ended 2013 on a high note.

The second chart shows that the tide turned in 2014. Conservative sectors are now swimming on top, while high octane sectors have sunk to the bottom of the performance chart.

This doesn’t mean the bull market is over, but the distribution of colors illustrates that investors have lost their appetite for risk (for now).

Like graying around the temples, this rotation out of risk reminds us of an aging bull market.

It’s not yet time to order the coffin, but indicators like this do warn of the potential for a deeper correction.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Up 28% – Will Apple’s Resurgence Last?

Based on chart analysis, AAPL has more room to rally and seasonality allows for higher prices. However, there is one fly in the ointment that could send the stock straight back down. Regardless, here’s support that should be watched for now.

Apple (Nasdaq: AAPL) just staged the biggest rally since September’s all-time high – shares are up 28% from the June 28 low.

Will the rally stick around or deflate?

AAPL Seasonality

The other day we looked at the first ever readily available AAPL seasonality chart. It pegged the September 2012 all-time high and the onset of this rally – View AAPL seasonality chart here.

AAPL seasonality projects a minor lull and another spike before a seasonal peak in September.

AAPL Technical Analysis

The AAPL chart shows a technical breakout. This breakout happened late July (green circle) when prices busted above resistance.

Unlike prior times (red circles), AAPL wasn’t rebuffed by resistance but defied resistance.

The July 29 Profit Radar Report commented on this technical breakout and suggested that: “Investors may leg into AAPL with a stop-loss just below 447.”

This was a low-risk trade set up, as support was only a couple points below the trading price, limiting risk to a mere 0.5%.

Apple’s big Tuesday spike hoisted price above another trend line, which will now serve as support.

Next resistance is around 520. As long as trade remains above support we’ll assume AAPL will get there. There are higher potential targets thereafter.

Multibillion-Dollar Tweet

The biggest concern about Tuesday’s mini Apple meltup is that it may have been caused by a news event or multibillion-dollar tweet. Via Twitter, Carl Icahn announced that he acquired a large position in AAPL.

This tweet increased Apple’s market cap by $12.5 billion. If the rally is only caused by a tweet, it could be quickly retraced. In my experience though, such external events (tweet) usually coincide with technical strength and are used to explain moves rather than causing a move.

AAPL Effect on Market

AAPL’s resurgence is happening as the overall market is showing weakness and sporting some bearish divergences.

AAPL is the biggest component of the S&P 500, Nasdaq (Nasdaq: ^IXIC), Nasdaq QQQ ETF (Nasdaq: QQQ) and Technology Select Sector SPDR (NYSEArca: XLK).

Although AAPL and broad market indexes were de-coupled from October 2012 – May 2013, Apple is still barometer for the broad market.

Despite some cracks, the major US indexes will have a hard time declining without the participation of AAPL.

As long as the S&P 500 remains above key support, there’s little to worry anyway.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow him on Twitter @ iSPYETF

 

Apple (AAPL) Seasonality Chart

Most investors are aware of the seasonal ebb and flows that influence the stock market, but iSPYETF is the first to make a seasonal chart for Apple readily available. 14-years of rich price history are packed into this one chart (which by the way predicted the AAPL September all-time high).

 

AAPL has had a wild ride. In a matter of months the stock lost 45% after a 15-year Apple specific bull market.

Apple shares recorded their all-time top tick on Friday, September 21, 2012 at 705.07.

Friday, September 21 may seem like an arbitrary day for an all-time high, especially since September/October usually marks the onset of a seasonally strong period of the year.
However, September 21 makes a lot of sense if you are familiar with AAPL seasonality. Why?
The seasonal chart for AAPL reveals that – on average – AAPL suffers its biggest losses of the year starting on September 16.
AAPL seasonality is based on price action since 1998, when Steve Jobs U-turned Apple from near bankruptcy to profitability.
AAPL seasonality was one of the reasons the Profit Radar Report turned bearish on Apple and issued this, at the time, shocking recommendation:
Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660.” The move above 700 occurred first and turned this into one of the sweetest short trades in history.
It’s always handy to be aware of AAPL seasonality. Despite its historic meltdown, Apple remains the ‘alpha male’ among stocks.
Depending on its share price, it accounts for more than 10% (at one time over 20%) of the Nasdaq-100 (Nasdaq: ^IXIC) and Technology Select Sector SPDR ETF (NYSEArca: XLK). It continues to be the top holding of the S&P 500 Index (SNP: ^GSPC) and SPDR S&P 500 ETF (NYSEArca: SPY).
How about seasonality for the broader stock market?
The Profit Radar Report has charted seasonal forces for the S&P 500 going all the way back to 1950 and condensed them into one telling chart.
This chart alerted us of the April 2010 and May 2011 highs, which were followed by 10 – 20% declines and the October 2011 and June 2012 lows, which were followed by a relentless rally (up 58% so far).
The Profit Radar Report not only charts basic seasonality, it also looks at (and illustrates) post election year seasonality and post-election year seasonality when a democratic president is at the helm.
To gain instant access to various seasonality charts, sign up for the Profit Radar Report.

 

ETF SPY: Will XLK Ride Apple’s Coattail?

Apple has broken above resistance courtesy of a post-earnings gap up open. This is a bullish development, but caution is warranted as there’ve been at least 7 dead cat bounces in recent months.

The after hours reaction to Apple’s earnings announcement was positive. Shares were up nearly 5% as AAPL beat earnings and sold more iPhones than expected. The biggest fly in the ointment was that margins are shrinking, a problem all companies face when they ‘grow up.’

Apple accounts for 11.67% of the Nasdaq-100 (Nasdaq: QQQ) and 13.15% of the Technology Select Sector SPDR (NYSEArca: XLK).
Although Apple’s effect on the technology sector is not as suffocating as it was at $700 a share, AAPL is still the single biggest component of QQQ and XLK.
Interestingly, XLK has thus far been unable to beat its May high, but QQQ did. This lag is not due to Apple, as Apple rallied 11.8% from June 24 – July 17, XLK only 7.51%.
XLK Technical Picture
The stock market in general is kind of stuck between a rock and a hard place. A correction is due, but any dip is likely to be bought again. This means the up side is limited, but so is the down side.
The XLK chart below shows basic support and resistance (solid red and green line).
A close below the July 19 low at 31.37 would be a failed percentR low-risk entry, essentially a sell signal.
As long as prices stay above 31.37, the open chart gap (purple bar) should be filled. Even a move to the red trend line is possible.
AAPL Technical Analysis
If you want a shot of nostalgia, you’ll enjoy this article from August 22, 2012:
This article was written at a time when analysts were ‘bidding’ for the highest Apple price targets. Above 1,000 was pretty much the minimum bet.
Apple then dropped from 705 to 385 and has been bouncing aimlessly ever since.
Today AAPL was able to clear short-term resistance at 437. Next trend line resistance is at 448.
There have been many false fits and starts for Apple since the April low at 385 and there’s no telling if this bounce will stick. Similar breakaway gaps (gray circles) were retraced shortly thereafter, so it’s prudent to wait for more confirmation.
Simon Maierhofer is the publisher of the Profit Radar Report.
You can follow him on Twitter @ iSPYETF.

Technical Analysis – Will Google Continue To Climb?

Google is trading at an all-time high but momentum is vanishing and RSI is showing two bearish divergences. This alone isn’t a sell signal, but a break below support should be.

A stock that’s trading at all-time highs has little overhead resistance and an unobstructed view to even higher prices targets.

After a truly nasty 18% selloff in October/November 2012, Google soared to new all-time highs. What’s next from here?

Like any other momentum move, Google’s momentum run will eventually take a breather. A number of indicators suggest that any upcoming correction may be more on the shallow side.

But there’s no law that says you need to suffer through corrections hoping that it remains fleeting and short-lived.

The chart below shows a dashed green trend line. A break below would be a first warning sign. A close below the horizontal support line at 760 would open the door to further losses.

Our last Google update (Will Google’s Fumble Take Down the Entire Technology Sector) was posted on October 19 (dashed vertical gray line) and said:

GOOG trading volume was through the roof as prices tumbled below the 20 and 50-day SMA and a couple of trend lines. Prices generally stabilize somewhat after large sell offs like this before falling a bit further. A new low parallel to a bullish price/RSI divergence would be a near-term positive for Google.”

The down side risk for Google and the entire tech sector was limited as the article pointed out that: “Next support for GOOG is around 660 and 630. The Nasdaq Indexes and the Technology Select Sector SPDR (XLK) has been much weaker than the Dow Jones and S&P 500 as of late. There were no bearish divergences at the recent S&P and Dow highs. This lack of indicators pinpointing a major top limits the down side of the tech sector.”

The lower green lines represent support at 660 and 630. Following a period of stabilization in late October, Google fell as low as 636 against a bullish RSI divergence and has been rallying ever since.

There’s no solid evidence that Google’s run is over, but RSI at the bottom of the chart is showing signs of fatigue and bearish divergences on multiple timeframes.

Bearish divergences can go on for a while and in itself are no reason to sell, but the bearish divergences combined with a close below 760 would point towards more weakness and could be used as a signal to go short for aggressive investors.

Don’t miss future analysis on market heavy weights like Google, Apple & IBM. Sign up for iSPYETF’s FREE e-Newsletter.

Real Nasdaq Lagging, But Ex-Apple Nasdaq Just Hit 12-year High

Stock market domination by one stock is a double-edged sword and Apple’s two-fold for better and for worse mastery over stocks has introduced the need for a more objective technology index – The ex-Apple Nasdaq.

Much has been written about the bearish divergence between the Dow Jones and S&P 500 compared to the Nasdaq and Nasdaq-100.

In fact, the Nasdaq-100 is trading 4.5% below its 2012 high, while the S&P 500 is trading more than 2% above its 2012 high water mark.

This could be (and has been) interpreted as a bearish sign, but that’s not necessarily the case.

For better and for worse the Nasdaq-100 has been hijacked by one stock – Apple. A few months ago Apple accounted for more than 20% of the index. As Apple went, so did the Nasdaq-100 (more about the correlation between Apple and Nasdaq here).

Just in September, Apple drove the Nasdaq-100 to the highest point since the 2000 tech bubble. Since then Apple lost as much as 35%. Apple’s decline has been a significant drag on the Nasdaq (corresponding ETF: PowerShares QQQ) and technology sector (corresponding ETF: Technology Select Sector SPDR – XLK).

Apple’s performance is holding the Nasdaq back from reaching new recovery highs, but the Nasdaq-100 without Apple’s drag (aka ex-Apple Nasdaq-100) would trade at new 12-year highs.

I haven’t figured out a way to reconstruct an exact ex-Apple Nasdaq-100 index, but a comparison between the PowerShares QQQ ETF and First Trust Nasdaq-100 Equal Weight ETF (QQEW) illustrates the point.

QQEW assigns an equal weight to all Nasdaq-100 components. The equal weight approach doesn’t eliminate Apple, but it comes close to an ex-Apple Nasdaq index.

The first chart plots the price of QQQ against QQEW since the March 2009 low.

The second chart shows the percentage gain of QQQ and QQEW since March 9, 2009. Although QQQ and QQEW took different routes, both ETFs gained exactly 167% from March 9, 2009 – February 1, 2013.

The steepest portion of AAPL’s ascent started on November 25, 2011. Within the next 10 months AAPL soared from 370 to 705. The powerful rally was followed by a gnarly 35% drop.

The third chart captures the period from November 25, 2011 – February 2013. This period includes Apple’s steep ascent and subsequent descent. The equal weighted Nasdaq-100 ETF (QQEW) clocked in at the highest level since December 2000 just a couple of days ago.

Never before has any one single stock exerted so much power on the stock market as a whole. This illustrates that extraordinary times call for ‘extraordinary’ and out of the box analysis.

Stripped of Apple’s performance, the Nasdaq-100 is trading at new recovery highs, thus erasing the bearish divergence between the senior U.S. indexes. This doesn’t mean stocks can’t decline, but it won’t be because of a true bearish divergence.

Will Google’s Fumble Take Down the Entire Technology Sector?

Due to a combination of facts, Google shares dropped as much as 11% on Thursday before trading in GOOG was halted by the Nasdaq. What caused this meltdown and will it carry over and drag down the Nasdaq and technology sector?

Google couldn’t wait to share its disappointing Q3 earnings with Wall Street. Although slated for an after-hours earnings report, Google accidentally spilled the beans around 12:30 EST.

At first it looked like a refreshing change to Washington’s modus operandi of extend and pretend or snore and ignore. But as it turns out, R.R. Donnelley (the company that does Google’s financial filings) accidentally filed Google’s 8-K form too early.

Heading for the Exits

Surprise turned into disappointment and distain as investors dumped GOOG as fast as they could. At one point GOOG was down $83.43 or 11%. Nasdaq even suspended trading in GOOG. Why the rush for the exits?

Analysts surveyed by Thomson Reuters expected earnings of $10.65 a share and net revenue of $11.86 billion.

The actual profit was only $9.03 a share on revenue of $11.33 billion. Another  major concern was that the average price that advertisers paid Google per click fell 15% from a year earlier. If Google, the king of monetizing advertising dollars, can’t charge top dollars anymore, how will Facebook and others?

What’s Next for Google?

Google is the third largest component of the Nasdaq-100 Index (corresponding ETF: PowerShares QQQ) after Apple and Microsoft. What does Google’s sell off mean for the Nasdaq QQQ and the technology sector (corresponding ETF: Technology Select Sector SPDRXLK)?

GOOG trading volume was through the roof as prices tumbled below the 20 and 50-day SMA and a couple of trend lines. Prices generally stabilize somewhat after large sell offs like this before falling a bit further. A new low parallel to a bullish price/RSI divergence would be a near-term positive for Google. Next support for GOOG is around 660 and 630.

Will Google Drag Down the Technology Sector?

The Nasdaq Indexes and the Technology Select Sector SPDR (XLK) has been much weaker than the Dow Jones and S&P 500 as of late. There were no bearish divergences at the recent S&P and Dow highs. This lack of indicators pinpointing a major top limits the down side of the tech sector.

Key support for the Technology Select Sector SPDR (XLK) is at 29.50. A move below 29.50 would be technically bearish although there may not be much more down side. Traders may use 20.50 as trigger point for bullish and bearish trades.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Bi-Polar Technology Sector is Torn By Performance of Groupon, Facebook and Apple

About 18 months ago stocks were fueled by the Facebook, Groupon, and the smart phone app frenzy (i.e. Angry Birds). None of the above companies are actually included in the Technology Select Sector SPDR ETF, but the prospect of a new tech boom was enough to lift the entire sector.

And while the technology sector has continued to move higher, it has left Facebook, Groupon and others in the dust. Why? Allow me to republish some research notes previously reserved for subscribers.

Facebook Warning: Published May 11, 2012

“Facebook (FB) is expected to go public on Friday, May 19. The media will gladly spread the frenzy, but I’d like to point out a few nuggets to put Facebook’s insane valuation into perspective:

– Assuming a valuation of $100B, FB will trade at 33x advertising revenues. Google trades at 5.5x.

– At $100B, FB will be worth more than: Caterpillar, American Express, Home Depot, Walt Disney and even McDonalds. In fact, 15 components of the mighty Dow Jones Industrial Average have a market cap of less than $100B.

– The market value of Google at its IPO was “only” $27B

– Apple currently trades around 3.8x sales. The same metric applied to FB would put its valuation at $15B.

To some degree the social media bubble is reminiscent to the 1999 tech boom. Most social media companies are valued based on promises more than established accounting standards. Recent IPO’s of Groupon, Pandora, Yelp, and Zynga created a lot of hope during the first couple of days of the IPO and fizzled thereafter.

Will FB await the same fate? You can’t predict the extent of any frenzy, but the amount of fizzled frenzies dwarfs that of sustainable ones. My bold prediction is that FB will loose at least 30% of its IPO price by sometime in 2013.”

Well, it turns out I was wrong. Since its May 2012 IPO ,Facebook shares have fallen as much as 61% (from a high of $45 to a low of $17.55). Facebook’s market cap is now $44 billion.

Groupon Warning: Published December 17, 2010

It was my belief that the Groupon movement (group coupons) is dangerous for the economy and unsustainable. This was contrary the most of Wall Street‘s outlook. I picked on James Altucher, a popular tech cheerleader, to contrast our difference of opinions.

“Altucher doesn’t believe there’s a new social media/coupon bubble. This time is different because Groupon’s rejection of Google’s $6 billion bid is ‘the dawn of a new and improved internet bubble. Unlike the bubble of the late 90s, though, this one is based on fundamentals, not irrational exuberance’.

It’s ironic that Groupon’s success and refusal of Google’s advance is seen as the dawn of a new era. Groupon has a killer business model, which is a goldmine for Groupon, but poison for healthy economic growth.

This new way of buying nurtures frugality and robs restaurants and other retail stores of their pricing power. Groupon is feasting on a deflationary trend while wizards like Altucher see the company as a gateway to the new and improved economy.

According to Altucher this is ‘not a bubble, it’s a real significant boom.’ It’s a boom all right, we’ll just have to see whether it’s an economic or deflationary boom. My money is on the later.”

Since its November 2011 IPO Groupon shares have fallen from a high of $31.14 to a low of $4. Groupon’s current market cap is $3 billion, half of what Google was willing to pay for the company.

Technology Sector at 11+ Year High. Why?

The Facebook, Groupon, smart phone app boom is deflated, so why has the tech sector moved on to an 11+ year high?

A look at the top holdings of the Technology Select Sector SPDR ETF (XLK) may hold the answer.

Apple, IBM, and Google account for 34% of XLK and trade at or near all-time highs.

Microsoft, AT&T, and Verizon account for 19% of XLK and, like the Nasdaq-100, trade at or near a 10-year high.

Former highflyers like Cisco, EMC, Hewlett Packard, Corning, Yahoo, Broadcom, Dell, Applied Materials, Sandisk, Juniper Networks and others continue to trade near the lower end of their 15-year range.

It appears that a few strong companies mask the performance of many weak companies. That’s not the definition of a strong market or sector.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Apple Bullies the Nasdaq and S&P 500 But May Soon Disappoint Investors

The S&P 500, Nasdaq-100 and Technology Select Sector SPDR ETF are rallying to new multi-year recovery highs spurred by Apple’s record setting performance. As Apple goes, so goes the market, so what’s next for Apple?

Monday, August 20, 2012 is the day when Apple became the most valuable publicly traded company ever. That day the stock closed at $665.15 a share, giving it a market capitalization of $623.52 billion.

The previous record was set by Microsoft in 1999 when it was valued at $616.34 billion.

Apple is most certainly the biggest fish in the pond. How big? Apple accounts for 4.73% of the S&P 500 Index tracked by the SPDR S&P 500 ETF (SPY). The closest second is Exxon Mobil with a weighting of 3.22%.

All by itself, Apple’s share price matters almost as much as that of IBM, Microsoft and General Electric combined. While Apple dominates the S&P 500, it outright bullies the Nasdaq-100.

At $665 a share Apple controls 19.65% of the Nasdaq-100 and the ETF that tracks this index, the PowerShares QQQ (QQQ). Even more lopsided is AAPL’s share in the Technology Sector SPDR ETF (XLK), where it accounts for 20%.

Apple is so big that when Apple sneezes the U.S. stock market gets a cold. So how is Apple’s health?

Fundamental Analysis – New iPhone, New iPad … New Highs?

Consumers and investors are highly anticipating the new iPhone 5, the new iPad mini and Apple TV. With the holiday season coming up there are plenty of reasons to expect new all-time highs and record valuations for AAPL.

Apple trades at only 13 times earnings and many analysts consider Apple stock cheap.

Technical Analysis – Strong Resistance in Sight

The chart below shows AAPL on a log scale since 2000. I have shown the chart before, most recently in the July 22 Profit Radar Report, which stated that: “The upper red resistance channel will be around 660 later this week. A final push to kiss this trend line good bye would provide a beautiful technical picture and a solid sell signal.”

On Tuesday, August 21, the upper trend line resistance is at 679. Shares weren’t quite able to touch the line, which allows for new highs in the coming days.

If Apple shares follow the path of seasonal patterns in election years, we should see a top in Apple in late August followed by another seasonal high in November/December.

 

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