SPY AND QQQQ FORM HARAMI PATTERNS -- FINANCIALS LEAD RECOVERY BOUNCE -- SURGING OIL BOOSTS XLE AND OIH -- MARKET CARPET SEES RED IN 2009 -- CONSUMER STAPLES SECTOR SHOWS RELATIVE STRENGTH
SPY AND QQQQ FORM INSIDE DAYS ... Today's Market Message was written by Arthur Hill. - Editor
After a long black candlestick and sharp decline on Tuesday, the S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQQ) formed inside days on Wednesday. Taken together, the candlesticks of the last two days formed harami. These are potentially bullish candlestick reversal patterns that require confirmation with further upside. The long black candlestick is in the direction of the short-term trend, which is down. The smaller white candlestick is within the range of the long black candlestick. After a big move down, the white candlestick showed sudden indecision that can sometimes foreshadow a short-term reversal. "Short-term" is the key phrase because candlestick patterns are short-term in nature. Chart 1 shows QQQQ battling support from the mid-late December lows. A clear break occurred on Tuesday, but today's bounce keeps this support level alive. Follow-through above Friday's high would reverse the 10-day downtrend. Chart 2 shows SPY breaking support from the mid-late December lows. Even though SPY managed to firm with the harami over the last two days, the short-term trend is clearly down with resistance based on Friday's high. A move above this high would confirm the harami and reverse the short-term downtrend.
Chart 1
Chart 2
FINANCIAL SECTOR LEADS REBOUND... The Financials SPDR (XLF) led the market higher with double-digit gains on Wednesday. While these gains look impressive on a percentage basis, double-digit gains are much easier when starting from low levels. XLF declined from 13 to 8 over the last two weeks (-62.5%). From 8, it only takes an 80 cent rise to produced a 10% gain. Regardless of the size of the gain, XLF managed to close above yesterday's open with a strong advance throughout the day. In addition to this recovery, RSI became oversold for the first time since late November. The combination of oversold conditions and a strong recovery could lead to further strength. However, keep in mind the long-term trend remains down. A bounce at this stage is still deemed a counter-trend rally. Broken support around 11 turns into resistance and this is the first target on any oversold bounce.
Chart 3
ENERGY PERKS UP... Chart 4 shows the Energy SPDR (XLE) finding support near its late-December low. The ETF has basically consolidated since mid October with a trading range. Range support is around 40 and range resistance resides around 52-53. The ETF is showing some signs of relative strength by holding the late-December low (blue arrow). In addition, the relative strength comparative turned higher over the last few days (green arrow). Chart 5 shows the Oil Service HOLDRS (OIH) finding support just below 70 for the third time in three months. It is important to note that both XLE and OIH are in long-term downtrends. Both are trading below their 200-day moving averages and their 50-day moving averages are below their 20-day moving averages. While further strength off support is certainly possible, it is within the context of a bigger downtrend.
Chart 4
Chart 5
OIL FINDS A BID... Strength in the energy sector stems in part from big surge in oil. Chart 6 shows the United States Oil Fund ETF (USO) getting a bounce off its December lows. The long-term trend is clearly down for USO, but the ETF is finding some support around 28-30. No doubt the double-bottom theorists are making waves as two lows form in this support area. There is indeed a double bottom working, but it is just a "potential" at this stage. Double bottoms require confirmation with a break above the intermittent high. In this case, it would take a break above resistance at 40 to confirm a double bottom. At this point, it is merely a support test within a downtrend. Hmm...this seems to be a common theme. The first six charts in today's message show long-term downtrends, but signs of support and short-term strength could pave the way to an oversold bounce.
Chart 6
BREAKING IT DOWN WITH CARPETS... The Market Carpet provides a good sector overview as well as a means to single out individual stocks. Chart 7 shows the S&P Sector Carpet swimming in a sea of red since 2 Jan (12 trading days). The table in the right-hand corner shows the top five stocks and bottom five stocks for 2009. This year's five biggest losers came from the financial sector, which is hardly surprising. There is, however, a rebel green square in the financial sector carpet. SLM Holding Corp (SLM) is up over 20% this year. Three of the top five performers come from the consumer staples sector. Agilent, number three, comes from the technology sector.
Chart 7
From a visual perspective, it appears that the utilities, consumer staples and healthcare sectors are holding up the best this year. In fact, we can even confirm this by looking at the average change for each sector (white oval). These numbers show the average gain/loss for each stock in the sector. The average utility stock is down around 4.5%, the average consumer staples stock is down around 5% and the healthcare stock is down around 6.3%. These three sectors are holding up the best because their stocks have the smallest losses. Relative sector performance is important to ascertain the overall state of the market. A bullish market environment would show leadership from the consumer discretionary, financial, technology and industrial sectors. This is clearly not the case today. A bearish market environment would show relative strength in the defensive sectors, like healthcare, consumer staples and utilities. In addition, a bearish market environment would show relative weakness in the consumer discretionary, financial, industrial and technology. Judging from this year's sector performance, the state of the market is currently bearish.
Chart 8
Chart 8 shows the same Market Carpet with just the sectors. To move up a level, simply click the arrow in the upper-left of the chart. If there is no arrow, then click the sector title bar to increase the detail. For the other six sectors, the average stock is down over 10% since 2 January. Technology is holding up the best of these six because the average stock is down around 10.14%.
HONING IN ON INDIVIDUAL STOCKS... Chart 9 focuses exclusively on the consumer staples sector within the Market Carpet. You can see the details within the sector by clicking on the title bar for the consumer staples sector. For other options, hover over the Market Carpet and right click your mouse. I chose "show tickers" to see which stocks are outperforming and which are underperforming. The dark green boxes show stocks that are up 5% or more, of which there are four. The dark red boxes show stocks that are down 5% or more, of which there are more than 20. As you can see, most of the stocks in the consumer staples sector were also hit hard during the market decline this year. There were not many places to hide. For a quick view of the chart, click on the box with the ticker symbol. A fresh line chart appears in the upper right. Supervalu (SVU) is the top performer in the consumer staples sector with a 25.13% gain. Atria (MO), the tobacco giant, is also showing relative strength with a nice gain this year.
Chart 9
Chart 10 shows Altria surging above its 50-day moving average with expanding volume over the last seven days. The stock is getting short-term overbought after such a big move. In addition, the long-term trend is still down as MO trades below the falling 200-day moving average. Broken resistance around 15.5 turns into support and this is the area to watch on a pullback.
Chart 10
