XLP fell out of this 9-year trend line, could be real signal

XLP fell out of a 9-year trend line after printing a Head and Shoulders bearish reversal pattern. This could be a real break. XLP and XLRE are leading indicators of stock market bearishness.

 

Probably not the fake type of break

I wrote in previous posts here and here the XLP and XLRE are two sectors to keep an eye on. In my opinion they are leading indicators should the US stock market turn bearish.

XLP rising trend meets 15 months resistance

This chart was published on 21 September 2017 | Source: Tradingview.com

 

There are real trend line breaks and there are fake ones. It is not easy to tell which trend line breaks are real but there are three important clues:

  1. Real breaks are more likely to be accompanied by high volume.
  2. Price moves a lot after a real break.
  3. Fake breaks reverse or show ‘regret’ very quickly i.e. dead cat bounce.

Here is XLP in the weekly time frame with one solid black candle below that 9-year trend line. Price is now in the second week below that line but at least yesterday’s action was a follow through.

XLP broke a 9yr trend line; weekly chart from 2014 - present

XLP broke a 9yr trend line

 

This is the year to date performance of XLP. The last snapshot taken on 10 October 2017 showed a XLP YTD performance of 4.06%.

SectorSPDR YTD performance end 30 October 2017

SectorSPDR YTD performance end 30 October 2017

 

Investors have to decide what this market signal means on an individual level. As for policy makers, the next step of quantitative easing or economic stimulus is to hand shopping vouchers directly to lower and middle income households?

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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