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Chart Advisor: Suspect Rebound


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Wednesday, April 21st 2021

1/ Nasdaq 100 weighed by Apple 

2/ Energy services industry disappoints 

3/ Rise of the junior gold miners 

4/ The bottom line

1/ Nasdaq 100 weighed by Apple 

Indexes rebounded today making several bullish engulfing candle patterns available around the markets. However, if chart watchers feel suspicious that this rebound may be susceptible to more selling, perhaps they have good reason.  

The chart below compares Invesco’s Nasdaq 100 Index ETF (QQQ) with Microsoft (MSFT) and Apple (AAPL). The tech index rebounded today despite the disappointing statement from Netflix (NFLX) yesterday that the number of new subscribers missed analysts’ expectations. Yet a more subtle detail of how the index rebounded can be seen both on an intraday timeframe over the past week (upper panel) and a daily chart stretching back to the beginning of the year (lower panel). This makes for a useful look at the relative strength between these three.  

In both panels AAPL shares are underperforming the benchmark, while MSFT shares are outpacing it. This price dynamic is less common for continuing upward trends. What is more common is that both stocks (which are highly influential in the calculation of the index) are leading the index higher, and that AAPL is in the lead. While this is not always a bearish indication, it usually presages more selling for the index.  

2/ Energy Services Industry Disappoints 

Last week the financial sector displayed a repeating pattern of stocks that released good news in their quarterly reports but triggered selling activity in the shares. The trend continues this week not only with NFLX, but two companies in the energy industry.  

Both Halliburton (HAL) and Baker Hughes (BKR) released earnings yesterday after the market closed. On paper they beat the stated expectations of analysts, but shares sold off anyway as a result of tighter profit margins and the implication of continuing sluggishness among the oil exploration segment.  

This is another subtle indication that investors are less willing to give the benefit of the doubt to companies’ quarterly reports. Investor skepticism isn’t new, but the degree of it being displayed so far this quarter shows a marked difference when compared to investor sentiment in the previous quarter. 

3/ Rise of the Junior Gold Miners 

The price of gold, as tracked by State Street’s Gold Trust ETF (GLD) has reversed its trend and is heading higher corresponding to falling interest rates. When this moment arrives, strong results are usually evident among junior gold miner companies. 

The chart below shows that VanEck Vectors Junior Gold Miners ETF (GDXJ) has generated a bullish divergence (see left panel). Three of the stocks that make up the holdings of GDXJ are compared to GLD (see right panel) including Eldorado Gold (EGO), Seabridge (SA), and Sandstorm Gold (SAND). These stocks, individually are much more volatile than the price of GLD or GDXJ, but they offer greater opportunity in the event of an upward trend.  

The other important note that should not be overlooked in this chart is that the price of Gold, at times considered a safety trade against inflation, or falling markets, or both, is on the rise at a time when subtle weakness is apparent in other parts of the market. 

4/ The Bottom Line 

The Nasdaq 100 and other major indexes rebound from yesterday’s selling but did so with enough curious evidence to generate suspicion in the minds of experienced chart watchers. Both energy sector companies and gold mining companies seem to provide some evidence that continuing upward moves for stocks might face resistance.

Originally posted on 21st April, 2021

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