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.

Will Apple Pull Down the Nasdaq?

Monday’s pop and drop performance doesn’t look too alarming at first glance, but the chart turns more bearish if you add a few technical indicators to the mix. Nevertheless, aside from one bearish Apple fact, I can’t quite get myself to turn overly bearish on the tech heavy index.

“All’s well that ends well.” Monday on Wall Street started out with a bang, but didn’t end well.

Two of the most bearish charts are Apple and Nasdaq-100 (Nasdaq: QQQ).

AAPL opened at 461, but was down 3.18% by the close.

The Nasdaq-100 lost over 1% over the course of the day.

On the surface the Nasdaq’s (Nasdaq: ^IXIC) performance doesn’t look bad (it lost 1%, so what?), but the devil is in the details.

The chart below highlights why Monday’s reversal could be more bearish than the 1% decline suggests.

Please note the 46-month trend channel (black lines). Monday’s open propelled trade outside the trend channel before reality reeled price back in.

The chart insert shows that Monday’s action created a red candle high. In summary we have a red candle high after a potential throw-over top with a close below key resistance.

Nevertheless, I can’t bring myself to get overly bearish. I discuss why and what exactly this formation means via the Profit Radar Report. The black trend line is now the ‘line in the sand’ between short-term bullish and bearish potential.

Another AAPL Breakdown?

AAPL has given back all the gains since it’s technical breakout on August 2 (the green circle highlights when the Profit Radar Report issued a buy signal).

The prior breakout level at 450 – 447 (where AAPL closed yesterday) is now soft support. Other than that the AAPL chart doesn’t offer many directional clues for the stock or must hold support levels.

But, AAPL is the ‘alpha male’ for US stocks, the biggest company in the world (based on market capitalization) and the biggest component of the Nasdaq and S&P 500 (SNP: ^GSPC).

It accounts for 12.21% of the Nasdaq QQQ ETF, 2.9% of the S&P 500 ETF (NYSEArca: SPY) and 14.38% of the Technology Select Sector SPDR ETF (NYSEArca: XLK). Let’s dig deeper.

My market outlooks are always based on, what I call, the three pillars of market forecasting: technical analysis, sentiment and seasonality.

We just looked at technical analysis and there are no sentiment extremes.

However, Apple is about to encounter the most powerful seasonality of the year, and purely based on seasonality I would not want to own Apple right now.

This seasonality is based on historic price action going all the way back to 1998, when Steve Jobs U-turned Apple from near bankruptcy to profitability.

The full AAPL seasonality chart along with its potent message can be found here:

Apple (AAPL) Seasonality Chart

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

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:

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

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.

Weekly ETF SPY: When To Expect Fake Breakouts

Technical breakouts are one of the most powerful market timing tools. Although they work most of the time, there are times when fake breakouts or breakdowns are to be expected. Here is when:

The Weekly ETF SPY usually highlights how to make breakouts work for you, but this week’s ETF SPY is about how to avoid getting burned by fake breakouts, fake breakdowns, or as I’d like to call them, fake out breakouts.

Trend line breakouts or breakdowns confirm a change of trend (at least temporarily) about 70% of the time. We’ve used such trend line breaks to identify deeper corrections in 2010 and 2011.

However, not all breakdowns are equal. Certain patterns are notorious for creating fake out breakouts.

If you are familiar with Elliott Wave Theory (EWT), you know that markets move either in 5 (trending) or 3 (counter trend) waves.

Within the 5-wave pattern, waves 4 have a reputation for zigzagging above all kinds of support/resistance levels.

The February 3, Profit Radar Report featured a complete forecast for the year 2013 (based on technical analysis, seasonality and sentiment). Directly ahead, at least based on my analysis, was a wave 4 correction.

Here’s how the February 3, PRR described what might be ahead: “Frustrating and seemingly aimless but powerful up and down moves should eventually retrace about a Fibonacci 38.2% of the preceding wave 3. The S&P is likely to spend much of February and March in a choppy correction.”

It’s too early to tell if we are in a fourth wave, but we were prepared for fake out breakouts. The chart below shows false breakdowns for four key ETFs: XLF, XLK, QQQ and SPY.

All four break below support, but we didn’t use it as a sell signal. Quite to the contrary, we used the 10+ year support/resistance line for the SPY ETF as a stop-loss for short positions and closed our short positions at S&P 1,491.

In summary, trend line breaks are one of my favorite indictors, but they must be viewed in context. If you don’t open your eyes to the bigger picture, you open your portfolio to bigger losses.

Make the ETF SPY work for You  >> Sign up for the FREE iSPYETF Newsletter to receive the Weekly ETF SPY Pick

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.

How Much Lower Can Apple Fall?

Apple shares have fallen as much as 17% since their September all-time high. Based on Apple’s humongous gains since 2003 the down side potential is quite large, but here’s one important support level to watch.

Did somebody upset the “Apple cart?” Apple’s earnings disappointed and the stock closed lower 6 out of 8 trading days. How much lower can Apple fall?

For readers of iSPYETF Apple’s 17% drop doesn’t come as a surprise. This September 18 article posted on iSPYETF (Technology Investing for Beginners – You Can’t Lose Money with Apple Math) warned that:

“Common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF and SPDR Technology ETF (XLK) will follow Apple’s direction.”

The September 12, Profit Radar Report (which identifies profit opportunities for subscribers) issued this trading recommendation: “Thus far Apple has been able to close above support at 660, but RSI is deteriorating. Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the ShortQQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

How Low Can Apple Go?

AAPL has rallied from $6 – $700 since 2003, so obviously there’s plenty of down side risk. The more appropriate question is: Where’s the next support for AAPL?

Below is an updated version of a chart that was first featured on this site on August 22 (Apple Bullies the Nasdaq and S&P 500 But May Soon Disappoint Investors).

We’re looking at a log scale chart of AAPL prices with two purple trend lines and a black parallel trend channel. The black trend channel contained prices since April 2010 and alerted us of the recent Apple top.

AAPL pulled away from trend channel resistance a few weeks ago and is now approaching the upper purple trend line. This trend line coincides with the 200-day SMA at 588 and will be important support. How AAPL reacts to this support may well set the stage for the Nasdaq and S&P 500.

The Profit Radar Report looks at all major markets (and some major players like Apple) to identify high probability, low-risk trading opportunities (or upset Apple carts).

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.

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 SPDR – XLK)?

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.