SPY AND QQQQ FIRM WITH SPINNING TOPS - HEALTHCARE SPDR HITS SUPPORT ZONE - PFIZER AND MERCK SURGE ON GOOD VOLUME - MARKET TURNS DEFENSIVE - CONSUMER STAPLES SPDR FIRMS AFTER SUPPORT BREAK - WAL-MART AND PROCTER & GAMBLE LEAD

SPY AND QQQQ FIRM WITH SPINNING TOP CANDLESTICKS... Link for todays video. After support breaks and sharp declines on Tuesday, the S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQQ) formed spinning top candlesticks on Wednesday (Charts 1 and 2). These candlesticks feature a small real body (open-close) and long upper/lower shadows (high-low). Ideally, the small body is in the middle of the days high-low range. Despite a relatively wide trading range, there was little change from open to close, hence indecision. After a sharp decline, this indecision signals a rest that could lead to a bounce or just a stall before a continuation lower. Looking back at January, we can see some indecision after the big support breaks and then a continuation lower. For both QQQQ and SPY, broken support turns into the first resistance level to watch. Support breaks that hold are valid. A move back above broken support would question bearish resolve.

Chart 1

Chart 2

HEALTHCARE SECTOR HITS SUPPORT ZONE... All sectors were down sharply on Tuesday, but the Healthcare SPDR (XLV) was down the least with a .58% loss. Today, Wednesday, the picture is similar with healthcare closing in positive territory and showing relative strength. Healthcare is traditionally a defensive sector that performs best when risk-aversion runs high, such as the last few days. Chart 3 shows XLV peaking in March, which was ahead of the S&P 500, and declining to its February low. There is a support zone around 30.3 from the February lows. A close look at XLV today reveals a weak open (below 30.5) and a strong recovery after the open. This reinforces support, but XLV has yet to reverse the short-term downtrend. Upside follow through is needed to reverse the seven week slide. RSI is shown becoming oversold in late April. Notice that I am using 10-period RSI instead of the customary 14-period. XLV is a little less volatile than the other sectors and certainly most stocks. Therefore, I increased the sensitivity of the indicator by decreasing the look-back period.

Chart 3

PFIZER AND MERCK SURGE ON GOOD VOLUME... Chart 4 shows Pfizer (PFE), a main component of the Healthcare SPDR, surging on big volume yesterday. The market was down severely, but Pfizer bucked the trend with a gap up and positive close. The stock broke the wedge trendline in the process, but met resistance from the April high. Follow through above this weeks high would be quite positive. Chart 5 shows Merck (MRK) surging with big volume on April 23rd and on Tuesday. The overall trend remains down for this big pharma player. In addition, notice that broken support turned into resistance just above 36. Again, a little follow through is needed here.

Chart 4

Chart 5

MARKET TURNS DEFENSIVE THE LAST TWO WEEKS... PerfCharts allow users to quickly identify leading and lagging sectors. These can even be used to identify leading and lagging stocks within industry groups. There is an industry group dropdown box at the bottom of the second column on the Free Charts page. PerfChart 6 shows relative performance for the nine S&P Sectors. This is not absolute performance. Instead, the percentage change is relative to the S&P 500, which peaked around April 23. From this relative performance chart, we can see that consumer discretionary, technology, materials, energy and finance led the market lower over the last nine days. The other four sectors held up better than the S&P 500. Consumer staples, healthcare and utilities held up the best, by far. These three sectors are traditionally defensive sectors that hold up best during a broad market decline. For reference, PerfChart 7 shows the absolute change for the nine sector SPDRs and the S&P 500.

Chart 6

Chart 7

CONSUMER STAPLES SECTOR FIRMS AFTER SUPPORT BREAK... Chart 8 shows the Consumer Staples SPDR (XLP) breaking short-term support with a sharp decline last week. Despite more weakness in the market this week, the ETF managed to firm and forge a small gain today. As noted above, the consumer staples sector is one of the defensive sectors that could show relative strength during a correction. No matter what happens to the stock market, economy, Europe or the Gulf of Mexico, we still need our toothpaste, laundry detergent, food and beer. The sector may not be fully immune to broad market weakness, but it should hold up better than the consumer discretionary or technology sectors.

Chart 8

WAL-MART AND PROCTER & GAMBLE LEAD CONSUMER STAPLES ... Wal-mart(WMT) and Procter & Gamble(PG) are the two biggest components of the Consumer Staples SPDR. WMT accounts for around 10%, while PG accounts for almost 16% for the ETF. Chart 9 shows Wal-mart finding support near the triangle breakout and surging on good volume the last two days. Chart 10 shows PG with a consolidation since late February. The stock has been edging lower since late March, but managed a gain today.

Chart 9

Chart 10

REVIEWING MOMENTUM INDICATORS FOR SPY... Just how strong was the decline over the last eight days? Strong enough to push a few key momentum indicators to their lowest levels since February. Chart 11 shows the S&P 500 ETF (SPY) with RSI (14), MACD(5,35,5) and the Aroon Oscillator(25). RSI and MACD are classic momentum oscillators. Tushard Chande, creator of the Aroon Oscillator, considers this indicator a directional pointer. I am focusing on the centerlines for these three indicators. Basically, they favor the bulls when above their centerlines and the bears when below. Whipsaws are possible, such as early November, but using this combination can help identify a correction, such as January-February. With the decline over the last eight days, RSI moved below 50 and the Aroon Oscillator moved into negative territory. MACD is still above zero, barely. The decline over the last eight days looks similar to the decline in late October or the decline in mid January. The October decline ended quite quickly, but there was another leg lower after the January decline. At this point, we need to see these momentum oscillators turn back up before considering an end to this correction. Yes, it is considered a correction. SPY advanced some 15% from February to April and is entitled to a pullback.

Chart 11