QQQQ AND TECHNOLOGY ARE LAGGING -- QQQQ REMAINS BELOW RESISTANCE -- SURGING OIL LIFTS OVERSOLD ENERGY ETFS -- LONG-TERM TRENDS FOR ENERGY ETFS REMAIN UP
QQQQ SHOWS RELATIVE WEAKNESS ... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor
The stock market bottomed on 15 July and surged over the last 11 trading days. Despite this big surge, performance has been unequal among the major index ETFs. Chart 1 shows the performance of four major index ETFs since 15 July. Small-caps led the charge with the Russell 2000 ETF (IWM) gaining around 8%. Large-caps were a distant second with the Dow Industrials ETF (DIA) and S&P 500 ETF (SPY) gaining around 5%. Despite lagging IWM, a 5% gain in 11 days is a most respectable performance. Large-cap techs are the big laggards as the Nasdaq 100 ETF (QQQQ) gained a mere 2% for this time period. One would normally expect large-cap techs to lead a broad market rally and relative weakness is a concern for the bulls.
Chart 1
THE NOT-SO-HOT TECHNOLOGY SECTOR... Chart 2 shows the Sector SPDR PerfChart in histogram format over the last 12 days. Sector performance has been quite lopsided during this time frame with the Financials SPDR (XLF) up a whopping 21.33%. The Consumer Discretionary SPDR (XLY) is the next closest sector with a 7.88% gain. Other than the three declining sectors (materials, energy and utilities), the technology sector sports the smallest gain among the positive sectors. This shows relative weakness in the Technology SPDR (XLK) and jibes with relative weakness seen in QQQQ recently.
Chart 2
QQQQ SPINS ITS WHEELS... Chart 3 shows the Nasdaq 100 ETF (QQQQ) trading flat throughout July and failing to break resistance. Overall, the ETF remains in a downtrend on the daily chart and the consolidation simply shows less selling pressure. The decline may have slowed, but buyers have yet to take control and push prices higher. Notice that the June-July decline retraced 62% of the March-June decline. This retracement makes it a logical spot for a reversal. While QQQQ was firming well above its March lows in early July, IWM was testing its March lows and SPY broke below its March lows. QQQQ showed less weakness at the time, but could not translate relative strength into absolute strength when the market took off in mid July. QQQQ needs to break above key resistance at 46 before it can play catch up.
Chart 3
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BOUNCING CRUDE LIFTS ENERGY SECTOR... Oil advanced sharply after the Energy Information Administration reported a decline in gasoline inventories. Rising crude prices subsequently boosted energy-related stocks, which had become oversold after sharp declines in July. Charts 5, 6 and 7 show the United States Oil Fund ETF (USO), the Energy SPDR (XLE) and the Oil Service HOLDRS (OIH) in 2008 with the Fibonacci Retracements Tool and 10-day RSI. All three rose from January to early July and then declined sharply in July. USO retraced 44% of the January-July advance, OIH retraced 50% and XLE retraced 68%. In addition to hitting these retracement zones in July, all three became oversold as 10-day RSI moved to its lowest levels since January. This combination of key retracements and oversold conditions make oil and the energy-related ETFs ripe for a bounce. Is this a dead-cat bounce or the start of something more? The fact that RSI declined all the way to 30 shows some serious selling pressure that could denote the start of a downtrend. In a downtrend, the 50-60 zone should act as resistance for RSI and this is the area to watch on any bounce. In the prior advance from January to early July, notice how the 40-50 zone acted as support from February to June in all three ETFs.
Chart 5
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LONG-TERM ENERGY TRENDS STILL UP... Charts 8, 9 and 10 show weekly charts for the United States Oil Fund ETF (USO), Energy SPDR (XLE) and Oil Service HOLDRS (OIH). Despite gut-wrenching declines in July, the long-term trends remain up for all three. USO experienced the sharpest advance with a serious upside acceleration in 2008. Even after a sharp decline in July, USO remains above the trend line extending up from August 2007. OIH and XLE formed rising price channels over the last two years. XLE declined to the lower trend line in July. OIH also declined in July, but found support near broken resistance around 190. The ETF remains well above the lower trend line of the rising price channel and looks stronger than XLE.
Chart 8
Chart 9
Chart 10
