By J.C. Parets & All Star Charts
Wednesday, 12th October, 2022
1/ Utilities Power Down
2/ More Trouble Ahead for Tech
3/ Homebuilders Show Strength
4/ Big Tech Breaks Down
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1/ Utilities Power Down
Utilities have emerged as laggards across short-term timeframes. This theme continued today as utilities lost ground again, dropping 3.35% to their lowest level since March of 2021.
From a technical perspective, it could make sense to see this selloff pick up momentum here. The Large Cap Utilities Sector SPDR (XLU) just completed a massive double top, taking out a shelf of pivot lows from this year and last.
Momentum is confirming the move, illustrated by an oversold RSI-14 reading in the lower pane. As long as this topping pattern is a valid one, we could anticipate a fresh leg lower for utilities. With today’s downside follow-through, it looks as though it could already be underway.
2/ More Trouble Ahead for Tech
Next in line after utilities, technology is the laggard over short and intermediate timeframes. Following a surge in outperformance off the market’s lows earlier this summer, the relative trend in technology has rolled back over, and is now taking out those pivot lows.
This is a look at technology versus the S&P 500 on an equal-weight basis.
This relative ratio has been working on a multi-year topping formation since early 2020. Downside follow-through from the current level would confirm the completion of this reversal pattern and suggest further underperformance from tech in the future.
3/ Homebuilders Show Strength
The Homebuilders ETF (XHB) vs. S&P 500 (SPY) relationship can offer critical information regarding the health of the economy and risk appetite.
Here is a look at XHB making new 6-month highs relative to the broader market.
Notice how homebuilders put in their relative lows back in April, months before the list of NYSE new lows peaked.
This kind of relative strength from an offensive group like XHB is a positive development for the overall market and risk assets in general. We’re seeing similar short-term leadership from other economically sensitive groups right now, such as regional banks.
4/ Big Tech Breaks Down
Markets have been under pressure for the last 18 months. Not only are the major U.S. indices and sectors threatening new lows, but we are seeing similar action from some of the world’s largest and most important stocks.
We’ve created an equal-weighted custom index of the four largest stocks in the United States: Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), and Amazon (AMZN).
If this massive topping pattern executes to the downside, it would be a major development for the bear camp. This could mean a fresh leg lower from the largest and most important stocks in the market.
Together, these four stocks represent about 20% of the S&P 500 and almost 40% of the Nasdaq 100. Until they find a floor and stop falling, these indexes are unlikely to put in a sustainable bottom. For now, there is no evidence of this happening yet.
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Originally posted 12th October, 2022
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