HURRICANE DAMAGE PUSHES ENERGY TO NEW RECORDS -- RETAILERS AND TRANSPORTS ARE HIT THE HARDEST -- MARKET CAN'T REGAIN 50-DAY AVERAGES
OIL SERVICE HOLDERS ARE CLIMBING AGAIN ... Yesterday's late selloff in crude oil proved temporary. Reports of heavy hurricane damage in the Gulf Coast has pushed energy prices at or close to record highs today -- including crude oil, gasoline, and natural gas. That's giving another boost to energy shares which are the day's strongest market sector. Last night I shows an intra-day chart of the Oil Service Holders (OIH) fading a bit after hitting a two-week high. The daily price bars put the recent action in better perspective. It shows the OIH still safely above its (blue) 50-day moving average. That's necessary for an uptrend to continue. The green lines are Bollinger Bands. The OIH is trying to close above the (dashed) 20-day average for the first time in two weeks. If it does, that would be a positive turn for the energy patch, but a negative turn for the rest of the market which is trading down. Two of the hardest hit groups are retailers and transports. Both are sensitive to rising energy prices. Retailers have also been one of August's weakest market groups.
Chart 1
RETAIL HOLDERS ARE TESTING 200-DAY LINE ... The Retail Holders are among the day's weakest groups. The daily bars show that the RTH broke its (blue) 50-day line two weeks ago and is now in the process of testing more important support at its (red) 200-day line. The relative strength line peaked at the end of July and has been dropping during August. I've warned before that selling in retail stocks is usually an early sign of a drop in consumer spending and isn't good for the rest of the market. The biggest holding in the RTH is Wal Mart which has already fallen to a three-year low. The second biggest holding -- Home Depot -- is trading under its 200-day average.
Chart 2
Chart 3
TRANSPORTS UNDER PRESSURE ... The Dow Transports are also under heavy pressure due to rising energy costs. The daily bars show the transports threatening moving average support near 3650. It's also threatening to fall below its June peak near the same level. With the Dow Industrials already under pressure, a breakdown in the transports would start getting Dow Theorists more worried. The biggest drag on the group today are the airlines as shown in Chart 5. Rails are also under pressure.
Chart 4
Chart 5
NASDAQ TRADING UNDER 50-DAY LINE ... One of the key short-term developments that bears watching is the inability of the major market averages to climb back over their 50-day averages. In a rising market, the 50-day average is a support line. Once it's broken, however, it usually becomes a new resistance line. So far, none of the major market averages have been able to climb back over that line. That's keeping the market on the defensive. It's also important to recognize that longer-term trends are weakening. That limits the upside potential on any short-term bounces.
Chart 6
