HOLIDAY VOLUME KICKS IN -- NASDAQ BOUNCES OFF 50-DAY -- SMALL-CAPS GET INTO THE SPIRIT -- OIL FALLS SHARPLY -- OIL SERVICE STOCKS FOLLOW CRUDE LOWER -- AIRLINES GET A LIFT -- JETBLUE LEADS AIRLINE STOCKS
STOCKS FIRM ON HOLIDAY VOLUME......
NOTE: Today's update is provided by Arthur Hill of TDTrader.com.
After a three day fall leading up to Christmas, stocks firmed in thin trading on Tuesday. The NYSE Composite ended the day with modest gains and NYSE volume was less than half the normal level. Regardless of low volume, the NYSE Composite has been one of the strongest indices over the last few months and extended its gains in December. While the Nasdaq and Russell 2000 are testing their 50-day moving averages (see below), the NYSE Composite remains well above its 50-day moving average. This tells us that the NYSE Composite is outperforming, while the Nasdaq and Russell 2000 are underperforming. Even though we have yet to see break-downs or support breaks, this underperformce is a concern and we should watch support levels closely over the next few weeks.
Chart 1
NASDAQ TESTS KEY SUPPORT...... The Nasdaq bounced off key support on Tuesday and volume was also less than half the normal level. Broken resistance, the 50-day moving average and the prior lows all confirm support around 2400. First, the index broke resistance at 2380 in mid November and broken resistance turns into support. Second, the Nasdaq held broken resistance with bounces in late November and early December. These reaction lows established support at 2390. Third, the rising 50-day moving average is just above 2400.Taken together, these three form an important support zone around 2380-2400 and the medium-term uptrend is in good shape as long as this support zone holds.
Chart 2
SMALL-CAPS TAKE THE LEAD...... Even though trading was rather quiet, small-caps took the lead as the Russell 2000 gained almost 1%. The chart setup for the Russell 2000 is similar to that seen in the Nasdaq. The index broke resistance with a surge in mid November and broken resistance turned into support with a successful test in late November. The 50-day moving average further confirms support around 775. Even though volume was relatively low, today's bounce reinforces support and the medium-term uptrend is in good shape as long as this support zone holds.
Chart 3
OIL PLUNGES ON LOWER DEMAND...... Falling oil prices are helping stocks. Mild winter weather over the last few months led to a drop in demand for heating oil. As a result, the U.S. Oil Fund ETF (USO) plunged over 2% and this affirms resistance around 55. Moreover, the decline could also signal a continuation of the July-Oct decline. USO declined from 74 to 51 and then consolidated. The consolidation over the last few months looked like an inverse head-and-shoulders, but USO never broke resistance for confirmation. Today's decline reinforces resistance and this consolidation is just a rest within an ongoing downtrend. Look for a break above the early December high to reverse this downtrend.
Chart 4
OIL SERVICE HOLDRS EXTEND PULLBACK...... The Oil Service HOLDRS (OIH) extended its pullback and is entering a support zone. The ETF led the market higher in October-November and then stalled in early December. OIH appeared headed higher after a flag breakout in mid December, but this breakout failed to hold and the ETF broke support at 144 with a rather sharp decline over the last seven days. There is support around 140 from the November consolidation and the 50-day moving average. However, I would not expect support to hold unless the U.S. Oil Fund ETF (USO) firms and breaks resistance.
Chart 5
AIRLINES GET BOOST FROM FALLING OIL PRICES...... News of falling oil prices lifted the Amex Airline Index ($XAL). The index surged over 2% and bounced off the 50-day moving average. The 50-day moving average is really getting some respect today! Also notice that XAL found support near broken resistance and the decline over the last few weeks looks like a small wedge. The trend is clearly up after the big advance from mid August to mid November. This wedge looks like a small correction or consolidation and a move above the mid December high would signal a continuation of the uptrend.
Chart 6
JETBLUE AIRWAYS BOUNCES OFF SUPPORT...... JetBlue Airways (JBLU) was one of the leaders in the airline group with a 2% gain. Volume was below average, but the stock has lots of support around 13.5. JBLU surged from early October to mid November and this surge ended with an exhaustion gap. The gap was quickly filled with a decline below 13.5 and this makes it an exhaustion gap. A tight consolidation formed over the last four weeks and the direction of the break will provide the next signal. Look for a move below consolidation support to bring the bears back and a break above consolidation resistance to revive the bulls.
Chart 7
