RELATIVE WEAKNESS IN FINANCE WEIGHS - HOMEBUILDERS CONTINUE TO UNDERPERFORM - RETAILS UNDER PRESSURE - WALMART HANGING TOUGH

RELATIVE WEAKNESS FINANCE WEIGHS... Link for todays video. Even though the major indices and sectors remain in uptrends overall, there are a few key areas of weakness that merit attention. First and foremost, the Financials SPDR (XLF) remains a drag on the overall market. Even with strength in Bank of America (BAC) today, chart 1 shows XLF failing to hold early gains and affirming resistance at 15. Resistance in this area stems from the November highs and a 62% retracement of the October decline. A triangle is taking shape over the last two months. A break above 15 would be bullish, while a break below last weeks low would be bearish. The bottom indicator shows the price relative peaking in October and steadily declining the last seven weeks as XLF underperforms the S&P 500.

Chart 1

HOMEBUILDERS CONTINUE TO UNDERPERFORM... Chart 2 shows the Homebuilders SPDR (XHB) lagging the S&P 500 since mid September, which is when the ETF peaked around 16.5. The indicator window shows XHB (blue) with the S&P 500 (red). Notice that the S&P 500 continued to new reaction highs in October and November, but XHB forged lower highs over this same period. XHB sprang to life with a sharp advance in early November, but fell back over the last three weeks. While this fall-back looks like a falling flag, it is falling until there is a breakout at 15. This means the downtrend rules the roost. Barring a breakout at 15, the 62% retracement marks the next downside target around 13.

Chart 2

RETAILERS UNDER PRESSURE... Chart 3 shows the Retail SPDR (XRT) underperforming the S&P 500 since mid October. The ETF surged in early November, but fell short of its October high and moved lower the last four weeks. A small falling channel has taken shape, which defines the downtrend. Look for a break above channel resistance to reverse this slide. Even though the decline has been modest so far, it is a decline until proven otherwise and the next support area is around 31-32. The last three charts show key groups in downtrends over the last four weeks. Breakouts are needed before we can count on a Santa Claus rally.

Chart 3

Recent weakness in some key retailers is quite striking. Aeropostale (ARO) is down over 30% from its September high. Macys (M) and JC Penney (JCP) are down over 20% from their October highs. A number of retailers reported disappointing November sales this week. Chart 4 shows Abercrombie & Fitch (ANF) gapping down and losing over 8% on Thursday. Notice the gap above 38 failed to hold and this makes it an exhaustion gap. Chart 5 shows Childrens Place (PLCE) gapping below support and losing over 10%. On the discount side, chart 6 shows Walmart (WMT) holding its gains after a 10% surge. Walmart may be a popular place for holiday bargain hunters.

Chart 4

Chart 5

Chart 6