SEMIS LEAD TECHNOLOGY SECTOR LOWER -- INTC, KLAC AND TXN DROP SHARPLY -- NASDAQ AND AMEX LAG -- XLF AND XLY SHOW LEADERSHIP -- FINANCIAL RELATED ETFS BOUNCE OFF SUPPORT -- STOCK LEADERS IN THE FINANCIAL SECTOR
SEMIS GET SLAMMED... Today's Market Message was written by Arthur Hill. John Murphy will return next week. - Editor
Semiconductor stocks led the technology sector lower with steep losses on Wednesday. Charts 1 and 2 show the Semiconductor HOLDRS (SMH) and Semiconductor PowerShares (PSI) dropping sharply over the last two days. Both bounced in early August, but met resistance between the 50% and 62% retracement levels in mid August. The decline over the last 2-3 weeks carried both back to their July lows. The bottom indicator window shows the price relative, which plots the ratio of the ETF to SPY. With both price relatives moving below their July lows, the semiconductor ETFs are showing relative weakness and leading the technology sector lower. It is hard to imagine a rally in the technology sector or Nasdaq when semis show relative weakness.
Chart 1
Chart 2
KLAC, TXN AND INTC LEAD LOWER... Within the semiconductor group, Intel (INTC), KLA Tencor (KLAC) and Texas Instruments (TXN) are leading lower. Chart 3 shows Intel breaking resistance in early August and this level turning into support in late August. September was not kind as the stock moved back below the August breakout today. Chart 4 shows Texas Instruments breaking below the August lows over the last two days. TXN attempted a bounce on Tuesday, but fell back with the rest of the market after a strong open. It would take a move above Tuesday's high to set a possible bear trap. Chart 5 shows KLA Tencor breaking below its August lows and the March trend line. This three-day decline started with a gap down on Thursday.
Chart 3
Chart 4
Chart 5
NASDAQ LEADING LOWER... The market peaked in mid August and has been moving lower the last three weeks. As the Major US Markets PerfChart shows, the Nasdaq led the decline over the last three weeks with a 3.91% loss. The Amex Index, which is energy heavy, was the second biggest loser with a 3.85% loss. Of the remaining three, the Dow is holding up the best (no change). Most likely, the Dow is benefiting from relative strength in financials. Despite the Dow holding flat, this PerfChart shows us that stocks have been generally weak since mid August.
Chart 6
FINANCIALS HOLDING UP WELL... The Sector SPDR PerfChart below shows the percentage change in the sector SPDRs over the last three weeks (15 days). As expected, this PerfChart confirms relative weakness in the technology and energy sectors. The Technology SPDR (XLK) is down the most of the nine sectors and down more than the S&P 500. Of the nine sectors, seven are down over the last three weeks and only two are up. What I find most interesting is relative strength in the Financials SPDR (XLF) and Consumer Discretionary SPDR (XLY). In the face of broad market weakness, XLF is up 7.24% and XLY is up 2.83%. On the face of it, it would appear that money is moving from the technology and energy sectors into the financial and consumer discretionary sectors. It is an odd play, but that's what the chart suggests.
Chart 7
XLF, RKH AND IAI PERK UP ... The Financials SPDR (XLF), Regional Bank HOLDRS (RKH) and Broker Dealer iShares (IAI) are perking up on the price charts. The market fell sharply last Friday and Tuesday, but these three ETFs held firm. The S&P 500 ETF (SPY) closed flat on Wednesday, but these ETFs gained over 1% on the day. The financial-related ETFs are showing relative strength and this is positive. Charts 8, 9 and 10 show the Financials SPDR, Regional Bank HOLDRS and Broker Dealer iShares over the last four months. All three charts show similar characteristics. There was a surge in mid July and then a trading range the last eight weeks. All three bounced off support two weeks ago and are challenging resistance. The bottom indicator window shows the price relative turning up over the last two weeks. With all three showing relative strength, we could see a move towards the 200-day moving averages and this would help the broader market. At the very least, it would offset relative weakness in the technology and energy sectors.
Chart 8
Chart 9
Chart 10
LEADERS IN THE FINANCIAL SECTOR ... The next charts show some of the leaders with the Financials SPDR (XLF). Chart 11 shows Charles Schwab (SCHW) breaking resistance in August. Chart 12 shows US Bancorp (USB) breaking above its August highs with good volume over the last two days. Chart 13 shows Prudential (PRU) surging above its August high with high volume over the last two days. Chart 14 shows Northern Trust (NTRS) hitting a new 52-week high today with above average volume. Not many financial stocks can make that claim.
Chart 11
Chart 12
Chart 13
Chart 14
