GOLD HITS SIX-MONTH HIGH AS OIL CLEARS $60 -- PULLBACK IN HOMEBUILDERS SOFTENS MARKET -- BIG TECHS WEIGH ON NASDAQ -- SO DOES THE SOX -- S&P 500 MAY RETEST ITS 50-DAY AVERAGE -- EXELON BREAKS OUT WITH UTILITIES
COMMODITIES CONTINUE TO RALLY ... Commodity markets continue the rally that started a month ago. Thirteen of the nineteen commodities in the Reuters/Jefferies CRB Index are in the black. Among the day's CRB leaders are copper, wheat, sugar, gold, aluminum, crude oil and silver. Crude exceeded $60 for the first time in a month. Chart 1 shows the positive chart action in the DB Commodities Tracking Fund (DBC). The commodity ETF bounced off its October low a month ago and is now trading back over its 200-day moving average. [The CRB is back over its 50-day line for the first time in 2007]. Gold is having an especially strong day. Chart 2 shows the streetTracks Gold Trust Shares (GLD) ending the week at a new six-month high. A close above its July intra-day high at 66.42 is all that's needed to push GLD into another bullish breakout. The commodity buying (and a late week bounce in bond yields) may be causing some nervous profit-taking in the stock market. So is lack of upside follow-through in the Nasdaq and a pullback in housing stocks.
Chart 1
Chart 2
TOLL BROTHERS WORRIES HOMEBUILDERS ... A negative report from Toll Brothers has caused nervous selling in homebuilding stocks. The daily bars in Chart 3 show the downside action in the stock during the last two trading days. The stock has fallen on heavy volume and is now threatening its 50-day moving average. Its relative strength ratio (below the chart) had been rising since last summer as homebuilding helped lead the market higher. This week's housing setback threatens to remove some of that bullish support. Chart 4 shows a pullback in the Homebuilders SPDR (XHB). Although no serious chart damage has been done to the uptrend, the daily stochastic lines are on a short-term sell signal. A late-week bounce in bond yields isn't helping either.
Chart 3
Chart 4
BIG NASDAQ STOCKS WEAKEN ... Another factor weighing on the market is relative weakness in the Nasdaq. Much of the diappointment is showing up in some of the biggest Nasdaq technology stocks. Three of the month's worst performances belong to Apple (-12%), Google (-7%), and Microsoft (-5.2%). Their daily charts also show that all three have fallen below their 50-day moving averages (which is a short-term sell signal). Their falling relative strength ratios (versus the Nasdaq) also show loss of upside leadership by the three former leaders. It's tough for the Nasdaq to rally in the face of that large-cap selling. It's also tough for it to rally in the face of a week semiconductor group.
Chart 5
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Chart 7
SOX WEAKNESS PULLS NASDAQ MARKET LOWER ... On Tuesday I wrote about the correlation between the Nasdaq market and the Semiconductor (SOX) Index. I explained that a rising SOX is usually a necessary ingedient in any Nasdaq rally. I also suggested that a new 2007 high by the Nasdaq was unlikely unless the SOX Index started to rally as well. Neither has happened. Chart 8 shows this week's modest bounce in the SOX Index falling well short of its January high. Friday's selling pushed it well below its 50-day average as well. The Nasdaq followed the lead of the SOX. Chart 9 shows the Nasdaq 100 (QQQQ) falling short of its January high. Friday's heavy selling appears to have ruled out an upside breakout in the near future. The failure of the Nasdaq to resume its uptrend is weighing on the rest of the market.
Chart 8
Chart 9
NASDAQ WEAKNESS THREATENS S&P UPTREND ... I've written before about the importance of Nasdaq leadership in any market rally. To make that point again, Chart 10 overlays the S&P 500 price bars with a ratio of the Nasdaq Composite divided by the S&P 500. The upturn in the ratio in early August contributed to the market rally. Up until late November, the Nasdaq led the S&P 500 high. The ratio has been slipping for the last three months. That's not too bad as long the Nasdaq resumes its uptrend and starts to show new leadership. This week's selloff, however, has weakened the ratio even further. That increases the odds for a pullback in the S&P 500 and the rest of the market. Chart 11 shows the S&P 500 ending the week on the downside. The 12 day Rate of Change (ROC) line shows loss of short-term upside momentum. That increases the odds for the SPX to retest its 50-day moving average (currently at 1422). The point & figure boxes in Chart 12 show the SPX suffering a three-box downside reversal today (the equivalent of 15 points from its recent high). The SPX needs to close at 1415 or lower, however, to trigger a p&f sell signal.
Chart 10
Chart 11
Chart 12
EXELON BREAKS OUT WITH OTHER UTILITIES ... Utility stocks were the week's top performers. In fact, they were the only market sector to end the week in the black. All utility indexes (and ETFs) closed at new record highs as well as several individual utility stocks. Exelon caught my eye because of its cleancut breakout. The daily bars in Chart 13 show the utility breaking through its recent highs to a new record. Its relative strength ratio jumped as well. The defensive qualities of utility stocks may have also contributed to this week's buying in that sector.
Chart 13
BUYING SOME BEER ... Consumer staples also held up a bit better than the rest of the market this week. One of the standout performers was Molson Coors Brewing Company. Not only was it one of the week's top percentage gainers in the defensive sector, it's following through on a a major bullish breakout. The monthly bars in Chart 14 show the stock (TAP) having just broken through its late 2000 and 2005 peaks. That puts it at a new record. People drink beer in good times and bad. That's why it's a defensive stock. Next time you guys feel like a Coors, tell your wife you're drinking it to boost the value of your stock holdings.
Chart 14
