STOCKS DRIFT AS MARKET WAITS -- DIA REMAINS IN A DOWNTREND -- IWM TURNS ERRATIC AT RESISTANCE -- HEALTHCARE SPDR FORMS HARAMI AT SUPPORT -- RESISTANCE REPULSES RETAIL ETFS
STOCKS DRIFT LOWER ... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor
The stock market lacked direction today as stocks drifted most of the day. It seems that the market is waiting on something. Hmm, what could it be? With a huge bailout package being debated on Capitol Hill, market participants were justifiably apprehensive. Bailout news started last Thursday and has pretty much dominated the spotlight this week. While bailout news would most certainly move the market, we need the charts to quantify and truly judge the effects. Chart 1 shows the Dow Industrials ETF (DIA) with the Commodity Channel Index (CCI). I am showing a close-only chart for two reasons. First, intra-day swings are getting quite volatile. Second, the Commodity Channel Index (CCI), and most indicators for that matter, is based on closing prices. DIA remains in a clear downtrend on this chart. The ETF broke rising wedge support in August and then broke its mid-August lows in early September. These support breaks remain the dominant chart features. With a clear downtrend in effect, the onus remains on the bulls to prove the bears otherwise. A resistance break and follow through to last week's surge would do the trick, for the bulls that is. DIA established resistance around 115 in early September. A close above this level would break resistance and the trend line extending down from the May highs. This would also provide some needed follow through to last week's surge.
Chart 1
For the Commodity Channel Index (CCI), +100 and --100 are my key levels. A move above +100 shows considerable strength and turns momentum bullish. A move below --100 shows considerable weakness and turns momentum bearish. CCI plunged below --100 in early September and momentum remains bearish overall. A surge above +100 is needed to reverse this signal.
XLV HITS LONG-TERM SUPPORT... Despite a mixed market on Wednesday, the Healthcare SPDR (XLV) was the strongest sector. XLV gained over 1% on a day that clearly lacked direction. Chart 2 shows weekly prices over the last 2 years. XLV has lots of support around 29.5-30 from the 2008 lows. The ETF bounced off this support zone in March and July. There was also a spike below 30 in January, but this looks like a little irrational exuberance. What a timeless phrase! The bottom indicator window shows the price relative, which compares the performance of XLV to SPY. Even though SPY and XLV fell over the last 6-7 weeks, the price relative held strong and this shows relative strength. XLV is holding up better than the broader market. Chart 3 shows daily candlesticks with a harami-cross forming over the last two days. These are potentially bullish candlestick reversal patterns that require confirmation. Look for a break above 31 to provide such confirmation and reinforce long-term support.
Chart 2
Chart 3
IWM AFFIRMS RESISTANCE ZONE... The Russell 2000 ETF (IWM) continues to battle resistance with a wild consolidation. According to the iShares website, the financial services sector makes up around 22% of the ETF, which helps explain the wild ride. Chart 4 shows weekly candlesticks over the last 18 months. IWM broke support with a sharp decline in December and broken support turned into resistance in March. After surging back to this resistance zone in August, trading turned volatile as the ETF battled resistance once again. Resistance is currently winning the battle. IWM surged above resistance last Friday morning, but closed weak and did not complete the breakout. With a sharp decline this week, IWM has once again failed to take out resistance. Look for a weekly close above 76 to exorcise this resistance zone and clear the way for higher prices. The bottom indicator window shows the 1-week Average True Range, which is a measure of volatility. Notice that ATR shot above 10 last week as volatility spiked.
Chart 4
RETAIL ETFS HIT BIG RESISTANCE... The Retail HOLDRS (RTH) and the Retail SPDR (XRT) hit big resistance zones in September. General market weakness weighed the last three days as both backed off resistance with rather sharp declines. Chart 5 shows RTH hitting resistance around 100 in mid September and then declining below 90 this week. This ETF was one of the market leaders from January to September. The red line in the bottom indicator window shows the price relative, which compares the performance of RTH to the S&P 500 ETF (SPY). The indicator bottomed in January and advanced throughout the year. The black line shows the 2-week Rate-of-Change for the price relative. It is an indicator of an indicator. While the price relative itself remains at relatively lofty levels, the Rate-of-Change indicator moved to its lowest level of the year. In other words, the 2-week decline in the price relative was the sharpest of the year. RTH is falling out of favor quickly.
Chart 5
Chart 6 shows the Retail SPDR over the last 18 months. XRT hit resistance around 34-35 in mid September and then pulled back sharply over the last two weeks. The ETF has support just above 30 and a break below this level would be bearish. Estimates suggest that retail spending drives 2/3 of GDP. Needless to say, a breakdown in the retail ETFs would have negative connotations for the economy.
Chart 6
KEY RETAILERS SHOWING WEAKNESS... The next four charts show some key retailers with sharp declines over the last 1-2 weeks. Aeropostale (ARO) plunged to its 200-day moving average over the last four days and the price relative broke its trend line. Target (TGT) fell around 10% the last four days and the price relative declined sharply. Best Buy (BBY) failed at resistance and declined to support over the last two weeks. Nordstrom (JWN) broke its July trend line and 50-day moving average with a sharp decline on Wednesday.
Chart 7
Chart 8
Chart 9
Chart 10
