MARKET BOUNCES ON DECENT VOLUME AND MAY HAVE MADE SHORT-TERM BOTTOM -- BANKS, INTERNET, AND RETAILERS LEAD RALLY -- GOLD CORRECTS
OVERSOLD NYSE BOUNCES ON STRONG VOLUME... A lot has been written about the 200-day moving average lately. That's because a market that breaks that long-term support line -- and then stays below it -- can be in trouble. Several market indexes have broken that support line over the last week (although some regained that line today). One that stayed above it is the NYSE Composite Index shown in Chart 1. The reason I think the NYSE is worth paying attention to is because it's also the only major market index that bounced off its 200-day line during the April/May decline. That makes today's bounce that more meaningful. On Monday I wrote that the NYSE Index was finding support near its 200-day line and was also benefiting from an oversold RSI reading under 30. The one thing missing was upside volume. That changed today. The NYSE experienced an upside reversal day (meaning it fell earlier in the day before closing higher) and it did so on heavy volume. That suggests to me that it (and the market) may have put in a short-term bottom.
Chart 1
NASDAQ REGAINS 200-DAY LINE ... The Nasdaq Composite was one of the indexes that broke its 200-day line last week. Chart 2 shows, however, that it closed back above that support line today. And it did so on rising volume. The daily stochastic lines have turned positive from oversold territory under 20. Those three factors combine to make for at least a short-term bottom. The Nasdaq Composite got a lot of help from the Nasdaq 100. Chart 3 shows the Nasdaq 100 Shares (QQQQ) bouncing off the 200-day line on rising volume. Most of the technology buying came from the Internet group which was one of the day's biggest gainers.
Chart 2
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INTERNET INDEX CLEARS 50-DAY LINE -- YAHOO STARS... The IIX Internet Index closed back over its 50-day average today. Another sign of the relative strength of the internet group is shown in the IIX:Nasdaq ratio line which has been rising since late August. While all of the big internet stocks rose today, the star was Yahoo. Chart 5 shows the internet and Nasdaq leader breaking out to a three month high on very strong volume. It's back over its 200-day line as well. The rising relative strength ratio confirms that Yahoo is starting to act like a Nasdaq leader.
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Chart 5
JP MORGAN LEADS FINANCIAL BOUNCE... The Financials SPDR (XLF) turned in the best sector performance and ended back over its moving average lines. It did so on rising volume as well. Notice the jump in its relative strength line since the start of October (when energy stocks started to correct). Banks were the financial leaders. One of the best chart days was had by JP Morgan which climbed on strong volume. The bank leader appears headed for a challenge of its September high and its 200-day moving average. It has to clear both barriers to turn its short-term trend higher. It's relative strength line has also been rising during October. I suggested yesterday that money coming out of the energy sector usually finds its way into the financials. Retailers are another beneficiary of lower energy prices.
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RETAIL HOLDERS ATTRACT BUYERS... Retail Holders (RTH) were among the top ETF gainers today. The daily chart shows the RTH gaining on strong volume. Its relative strength line has been rising since the start of October. It still needs to clear its moving average lines to improve its short-term trend. But it looks like some ex-energy money is nibbling in retail stocks. Target was the RTH standout. Chart 9 shows Target surging to a two-month high (and over moving average lines) on the strongest volume in months. Its rising relative strength line makes it a market leader on this upswing.
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Chart 9
GOLD CORRECTS ... I wrote earlier in the week about the tendency for gold to trend in the opposite direction of the stock market. That being the case, it makes sense that today's stock market bounce coincided with some gold profit-taking. The Gold Trust Shares (GLD) closed down the equivalent of $6.60 today on rising volume. The 9-day RSI line has slipped beneath the 50 line as well. The GLD, however, is still well above moving average support. If today's market buying is the start of a fourth quarter bounce, the gold sector may experience more profit-taking. I continue to believe, however, that the longer-range trend favors lower stock prices and higher gold.
Chart 10
