EARLY MARKET BOUNCE FADES ON HIGHER VOLUME -- HOME DEPOT LEADS RETAIL GROUP LOWER -- REITS THREATEN 200-DAY AVERAGE -- AMGEN LEADS NASDAQ LOWER -- TELECOM CONTINUES TO GAIN GROUND -- SARA LEE TOUCHES 52-WEEK HIGH
HOME DEPOT WEIGHS ON RETAILERS ... The retail group continues to weaken and is starting to weigh on the rest of the market. Chart 1 shows the Retail Holders (RTH) closing below its 50-day moving average for the first time in a month. Notice the heavy downside volume bars over the last week. That's not good. Neither is the drop in the RTH relative strength ratio (top of chart) to a new 2007 low. The direction of retail stocks gives us an early read on consumer spending. And consumer spending accounts for two-thirds of the economy. Today's biggest retail casualty was Home Depot. Chart 2 shows the home improvement stock falling on the heaviest volume since the start of the year. A lot of that is the result of weakness in the housing sector.
Chart 1
Chart 2
HOME DEPOT TIED TO WEAK HOUSING ... It should come as no surprise to read that Home Depot is closely tied to the housing industry. Chart 3 makes that point very clearly. It overlays the PHLX Housing Index (brown line) on the price of Home Depot (black bars). It's hard to tell the two apart. That's especially true since homebuilding stocks peaked in the summer of 2005. At the moment, it looks like the Housing Index (brown line) is leading the home improvement stock lower.
Chart 3
REAL ESTATE HAS A BAD DAY ... Real Estate Investment Trusts (REITs) have become one of the year's weakest market sectors. They were certainly that today. Chart 4 shows the Real Estate iShares (IYR) bearing down on their 200-day moving average. Its relative strength ratio (bottom of chart) is already at a new 2007 low. The weekly bars in Chart 5 show that the IYR is also threatening a rising support line (drawn on a log scale) going back three years. The line on top of Chart 5 shows the deterioration in its RS line. Chart 6 gives a better look by overlaying the IYR/S&P ratio (solid line) on the price bars of the IYR. Notice that the RS line has already broken its three-year support line.
Chart 4
Chart 5
Chart 6
AMGEN PULLS BIOTECH ISHARES LOWER ... After recently breaking out to the upside, Biotech iShares have entered a downside correction. Chart 7 shows the IBB nearing a test of its 50-day moving average. Most of the selling has come from Amgen which plunged to a new 52-week low on very heavy volume (Chart 8). Fortunately, most of the other big biotechs are holding up much better. Amgen, however, was the biggest percentage loser in the Nasdaq market which continues to drag down the rest of the market.
Chart 7
Chart 8
EARLY BOUNCE FADES ON RISING VOLUME ... As was the case yesterday, small cap stocks and the Nasdaq were the market's weakest stock indexes. Chart 10 also shows that volume continues to pick up as the Nasdaq is dropping. That's a classic sign of distribution (selling). The Nasdaq Composite is now threatening to fall below its late February peak at 2531. The rest of market held up a bit better, but faded late in the day. The Dow was the only index to close up. Chart 11 shows the NYSE Composite Index closing marginally lower. But it did so on heavy volume. That's a sign of a heavy market.
Chart 9
Chart 10
VERIZON KEEPS CLIMBING... Telecom has been a market leader for over a year now, and continues to do shrug off recent market profit-taking. AT&T and Verizon both hit new 52-week highs today in the face of selling almost everywhere else. Chart 11 shows Verizon trading at a new 5-year high. Its RS line (solid line) has broken a three-year resistance line and has just hit a two-year high. Telecom appears to be a good place to be.
Chart 11
SARA LEE HITS 52-WEEK HIGH ... Consumer staples also showed gains today. One of the day's leaders was Sara Lee. Chart 12 shows the baker testing its late February high. Upside volume has been improving as has its relative strength ratio. Consumer staples and telecom are two of the year's market leaders that I've suggested following.
Chart 12
