The market set off on another spate of volatility on Tuesday as headlines caused by North Korea’s saber rattling set a selling tone for traders. While there were already a growing number of stocks that have been cracking key technical support, the list has grown to include some more notable names of late.
Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Financial Select Sector SPDR Fund (NYSEARCA:XLF) and Sears Holdings Corp (NASDAQ:SHLD) are among the stocks and exchange-traded funds that are suffering technical setbacks, sending warning signals to the chart watchers that it may be time to exit from these issues as their charts suggest lower prices.
Alphabet Inc (GOOGL)
Alphabet shares have been slumping in comparison to the rest of the technology sector. GOOGL stock has given-up the leadership role that it assumed after a surge in prices in April and it is now following a pattern that suggests profit-takers are pushing the stock lower.
- GOOGL shares have been following a pattern of setting lower highs and lower lows since they topped out just above $1,000 in early June. This is a familiar intermediate-term bearish pattern that tells us that the technicians are selling into strength as they see risk in the longer-term trend.
- The 50-day moving average trend in Alphabet shares turned negative in early August, shifting the outlook from neutral to bearish. Historically, this results in a test of longer-term technical support before GOOGL stock will turn back to a neutral-to-bullish outlook.
- The last two days have seen a rejection at the down trending 50-day moving average after a short test of the stock’s lower Bollinger Band. We expect to see the rejection result in another test of the $920-price-level. Failure to hold this chart support will target a move to $888, Alphabet stock’s 200-day moving average.
Financial Select Sector SPDR Fund (XLF)
Because investors expected that the financial sector would show strong fundamentals, the sector was regaining strength as we headed into the last earnings season.
A lackluster earnings season set the course for an intermediate-term reversal that is now preparing to set course for even lower prices.
- The financial sector let investors and traders down in the last earnings season as the companies within the group provided mixed, at best, results. The results are that less than 40% of the stocks within the sector are trading above their respective 50-day moving average. This puts the sector in one of the weakest breadth position of the 10 major sectors.
- XLF shares broke below their 50-day moving average in August and they have spent the last two weeks trying to break back above only to find technical resistance at this critical trendline. This suggests that the technical traders have turned bearish and they are taking the opportunity that short-term pops in the share prices provide to sell into strength.
- Tuesday’s volatility saw the Financial Select Sector SPDR break its lower Bollinger Band for the second time in less than a month. The market’s response to this will be critical as another day below this level ($24.28) will induce volatility selling that will target a move below XLF’s 200-day moving average.
Sears Holdings Corp (SHLD)
Brick and mortar retailers have enjoyed a strong couple of months as better than expected earnings for these stocks had investors picking up the pieces of what appeared to be a shattered sector.
Now, we’re seeing the group splinter as companies like Sears aren’t able to muster the fundamental strength to support the rally. SHLD, in particular, is showing a reversal that hints that traders may want to take any profits from the latest rally.
- July played well for the bulls as Target Corporation’s (NYSE:TGT) earnings and the announcement that Sears would be selling their appliances on Amazon.com, Inc.’s (NASDAQ:AMZN) flagship site shot the stock above its 200-day moving average, but the rally was contained quickly by this bearishly trending moving average.
- The distance between the Bollinger Bands for SHLD decreased dramatically two weeks ago indicating that a volatility rally was building. After this, shares broke below their 50-day moving average last week triggering the technical bears to sell and setting the direction of the volatility rally towards lower prices.
- With momentum slipping into negative territory again and the RSI for Sears far from oversold readings, the stock is likely to head lower, quickly, before buyers begin to see any technical value.
- From a long-term perspective, SHLD remains in a bear market trend with the stock trading well below its 20-month moving average. This tells us that the stock is not attractive from an investment perspective.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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