STOCKS RECOVER IN FINAL HOUR -- XLF FORMS HAMMER -- RKH TRACES OUT DRAGON FLY DOJI -- RETAIL HOLDERS FAILS AT 50-DAY -- KOHLS GAPS DOWN -- TIFFANY DECLINES ON HIGH VOLUME -- WAL-MART HITS RESISTANCE
STOCKS STAGE LATE RECOVERY... Today's Market Message was written by Arthur Hill. - Editor
Stocks were down sharply in afternoon trading, but news of a mortgage relief program sparked a dramatic rally in the final hour. The Nasdaq (+.73%) and the Nasdaq 100 (+1.28%) led the recovery by closing with modest gains. The Dow was down almost 250 points at one stage, but rallied to close with a loss of less than 7 points. Chart 1 shows 30-minute bars with volume for the Dow Industrials ETF (DIA). I am using this example to show the volume spike in the final hour. DIA broke support with a gap down and appeared headed for a close below 77.5 just before 3 p.m. And then it hit. DIA took off in the final hour with a big volume surge. Notice that this surge is comparable to the volume surge on Tuesday's decline (10 Feb). The surge pretty much filled the morning gap, but there is still short-term resistance at 80 just ahead. Chart 2 shows medium-term resistance at 85. Let's see what happens when cooler heads prevail tomorrow. Over to you John!
Chart 1
Chart 2
FINANCIALS STAGE RECOVERY... Even though the weight of the financial sector has fallen dramatically the last two years, it still affects the overall market with outsized moves. Chart 3 shows the Financials SPDR (XLF) declining over 1% today. Chart 4 shows the Regional Bank HOLDRS (RKH) declining around 3%. These declines are actually quite small compared to earlier levels. XLF was down over 7% in afternoon trading, while RKH was down over 10%. Both significantly paired their losses with a sharp rally in the final hour of trading. Yesterday I reported that both ETFs formed inside days. After Tuesday's sharp decline, these inside days showed a moment of indecision. Today amounts to a reversal day that affirms support from the early February lows. RKH formed a dragon fly doji, while XLF formed a hammer. Both have long lower shadows that reflect a recovery after a rather sharp intraday decline. As with the inside days reported yesterday, follow through holds the key. Look for a break above resistance to confirm today's reversals.
Chart 3
Chart 4
RETAILERS WEIGH ON MARKET... Like the rest of the market, the Retail HOLDRS (RTH) was down almost 3%, but recovered its losses in the final hour to close virtually unchanged. While this intraday reversal is impressive, the overall trend remains down. Chart 5 shows RTH gapping down on 8 January and breaking support a few days later. This gap coincided with a big gap down in Wal-Mart. Both were featured in the 8 January Market Message. More recently, the Retail HOLDRS (RTH) failed at the 50-day moving average over the last few weeks. With another failure at resistance and a sharp decline this week, RTH is trending lower with the next support area around the November lows. At the very least, this week's sharp decline reinforces resistance around 73-74. A break above the February high is needed to consider a trend reversal.
Chart 5
KOHLS, TIFFANY AND WAL-MART... The next three charts show three retailers weighing on the group this week. Chart 6 shows Tiffany (TIF) falling sharply this week with above average volume. The decline looks like a falling wedge, which could be a correction, but the wedge is clearly falling as long as the February high holds. Chart 7 shows Kohls (KSS) hitting resistance just below the 200-day moving average throughout January. The stock pierced its 50-day moving average with a gap down on high volume today. Chart 8 shows Wal-Mart (WMT) recording a new 52-week low in early February. The stock bounced sharply last week, but fell back this week. This week's decline established resistance around 50.
Chart 6
Chart 7
Chart 8
