DIA HOLDS THE GAP -- QQQQ AND IWM SURGE TO RESISTANCE -- XLE AND OIH MAINTAIN THEIR LEADERSHIP -- MAJOR INDEX AND SECTOR PERFORMANCE FOR 2007
AN ISLAND REVERSAL FOR DIA ... Today's Market Message was written by Arthur Hill. - Editor
The Dow Industrials ETF (DIA) held above its November low by forging an island reversal over the last two weeks. On Chart 1, DIA peaked on 11-Dec when the Fed issued its policy statement. The ensuing decline below 132 was quite sharp, but the ETF suddenly firmed after the 17-December gap (down). The island reversal formed with a gap down on 17-Dec, a four day consolidation and a gap up on 20-Dec. Notice that there was a gap below 133 on 17-Dec and then a gap back above 133 on 20-Dec. The gaps created an island of prices that are essentially detached. More importantly, the gap above 133 shows strength and this gap is holding. Look for a close below 132.5 to fill the gap and negate this island reversal. The December high represents the next resistance test around 137.5. Chart 2 uses 30 minutes bars with a shorter timeframe to emphasize the gap zone.
Chart 1
Chart 2
QQQQ AND IWM HIT RESISTANCE ZONES... With a surge over the last few days, the Nasdaq 100 ETF (QQQQ) and the Russell 2000 ETF (IWM) are challenging important resistance levels. Chart 3 shows QQQQ with resistance around 52. This level marked support in October and turned into resistance in late November. QQQQ was on the verge of breaking resistance in early December, but fell back sharply after the Fed policy statement on 11-Dec. This big decline reinforced resistance around 52-53. Also notice that the 50-day moving average has been meandering around 52 the last few weeks. QQQQ needs to clear 53 to break this resistance zone.
Chart 3
Chart 4 shows the Russell 2000 ETF (IWM) with a familiar resistance zone around 79-80. This area marked resistance from early August to early September. The ETF broke above resistance in mid September, but failed at the summer highs and fell back to support in late November. The ETF has been range bound (~73 to ~85) the entire year and 79 marks the mid point of this range. With a surge over the last few days, IWM is once again challenging the 79-80 resistance zone. A breakout above 80 would signal another run towards resistance at 85.
Chart 4
ENERGY ETFS REMAIN STRONG... With a big surge over the last few days, the Energy SPDR (XLE) hit a new high and the Oil Service HOLDRS (OIH) broke resistance. XLE features the major integrated oil companies. These include Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP). OIH features the companies that provide oil-related services to these companies. Key components include Transocean (RIG), Schlumberger (SLB), Baker Hughes (BHI) and Halliburton (HAL).
On Chart 5, XLE broke resistance and moved to a new high for the year over the last few days. On Chart 6, OIH broke above its November-December highs. The price relative is shown in the bottom indicator window on both charts. This compares the performance of the ETF against the S&P 500 ETF (SPY). Notice that the price relative broke to new highs a few weeks ahead of the actual ETF (dotted blue lines). Both price relatives are trading at new highs and this shows continued relative strength in XLE and OIH. The more things change, the more they stay the same as the leaders continue to lead.
Chart 5
Chart 6
PERFCHART WINNERS FOR 2007 ... PerfCharts are great for comparing performance over a given timeframe. Chart 7 shows the Major US Markets Perfchart in Histogram format. The icons at the bottom left can be used to choose between line chart and histogram (red box). The time frame can be adjusted by using the white slider at the bottom right (green box). The slider is currently set at 246 days to cover the entire year.
Chart 7
The American Stock Exchange Index (AMEX), which is heavily weighted towards the energy sector, is the top performer this year (+20.07%). The technology-laden Nasdaq is a distant second (+10.06%), but still showing respectable gains for the year so far. The Russell 2000 is by far the weakest of the major indices. This shows relative weakness in small-caps for 2007. Financial Services is the biggest sector in the Russell 2000 and this sector weighed on the index throughout the year.
Chart 8 compares the performance of the nine Sector SPDRs. While all of the major indices are up on the year, only seven of the nine sector SPDRs are up this year. The Energy SPDR (XLE) takes top honors with a whopping 38.64% advance so far. The Materials SPDR (XLB), Utilities SPDR (XLU), Technology SPDR (XLK) and Industrials SPDR (XLI) also put in good performances. Strength in these sectors was offset by weakness in the Finance SPDR (XLF) and the Consumer Discretionary SPDR (XLY). The contrast is stark with XLF down over 20% and XLY down over 15% this year. It is really quite amazing to see gains in the major indices with such sharp declines in these two key sectors. Who would have thought? More importantly, this PerfChart shows the importance of being in the right sector at the right time.
Chart 8
