OIL SERVICE STOCKS EXTEND REBOUND -- HALLIBURTON LEADS GROUP HIGHER --- MATERIALS SECTOR MAKING UP LOST GROUND -- STEEL STOCKS FLEX THEIR MUSCLES -- NASDAQ BATTLES LAST WEEK'S GAP -- SEMIS DRAG THE NASDAQ LOWER
OIL SERVICE HOLDRS BREAKS RESISTANCE...
NOTE: John is travelling this week and will be back next Monday. Today's update is provided by Arthur Hill of TDTrader.com.
The Oil Service HOLDRS (OIH) led a rebound in the Energy sector on Tuesday with a surge above 134. This move is significant for three reasons. First, OIH broke above the upper trendline of a falling price channel. Second, OIH moved back above broken support. Third, OIH filled the early September gap. A basic tenet of technical analysis is that broken support turns into resistance.
Chart 1
HALLIBURTON SURGES ON BIG VOLUME ... HAL was a pal for the bulls today. The company reported third quarter earnings that beat expectations and this prompted a number of analyst upgrades. As a result, the stock broke above resistance at 30 on high volume. Notice that resistance stems from broken support, the September gap and the 50-day moving average. Volume was above average for the second day and this increase in "fuel" validates the breakout. The 200-day moving average and August highs mark the next resistance area is around 35.
Chart 2
MATERIALS SPDR BUILDS ON RESISTANCE BREAK... The Materials SPDR (XLB) was the second strongest sector SPDR on Tuesday. After lagging the S&P 500 from May to early October, XLB played some catch up over the last few weeks. The price relative, which compares the performance of XLB to the S&P 500, bottomed earlier this month and moved sharply higher over the last few weeks. On the price chart, XLB broke above resistance at 32.5 and held this breakout last week. The advance above 33 reinforces this breakout and it now turns into support.
Chart 3
STRENGTH IN STEEL... Steel stocks were strong across the board on Tuesday and this helped the Materials sector. Steel Dynamics (STLD), U.S. Steel (X) and Nucor (NUE) led the way. Nucor surged to a new 52-week high on the highest volume since June. The Accumulation Distribution Line showed strong volume inflow ahead of this breakout as the indicator broke to new highs two weeks ago. It is classic case of volume leading price.
Chart 4
THE NASDAQ ENDS LOWER... While the Dow moved to a new all time high again on Tuesday, the Nasdaq ended the day lower and has been lagging since the gap down last week. The Nasdaq closed above 2350 on Monday and looked poised to fill the gap today. However, the index failed to hold above 2350 today and close lower. The Naz needs to get over this gap to revive the bulls. Even though it is only one week, relative weakness in the Nasdaq is not a good sign for the overall market.
Chart 5
BLAME IT ON THE SEMIS... Semiconductor stocks have been weighing on the Nasdaq for over a week. The Semiconductor Index ($SOX) met resistance at its 200-day moving average last week and broke back below its 50-day moving average on Tuesday. The SOX is suddenly showing relative weakness and this is negative for the Nasdaq. All is not lost as the index is still holding its October low -- barely. I will be watching this group closely in the coming days.
Chart 6
