SMALL-CAPS AND TECHS LEAD AFTERNOON REBOUND - SEMICONDUCTOR, NETWORKING AND INTERNET ETFS LEAD TECH SECTOR - INTEL, CISCO AND GOOGLE LEAD TECHS - GLOBAL EQUITIES WEIGH ON OIL - OIL HITS SUPPORT ZONE AND BECOMES OVERSOLD
SMALL-CAPS AND TECHS LEAD AFTERNOON REBOUND ... Link for todays video. After a weak open and down morning, stocks began moving higher in the afternoon and finished in the green for the first time in three days. The gains were rather small though. Sectors were mixed with six up and three down. Energy led the way lower with a 1.05% loss. Consumer staples led the way higher with a 1.06% gain. Consumer discretionary and technology were the next biggest gainers, which is positive for the market. Chart 1 shows the Nasdaq 100 ETF (QQQQ) between a rock and a hard place. QQQQ gapped up six days ago and met resistance near broken support last week. With a gap down on Friday, the ETF is kind of caught between two gaps. There is support around 46 from the 50-62% retracement and gap up. Countering support, there is resistance from Fridays gap down and broken support at 49. Support, retracements, gaps, and resistance put QQQQ in a tough spot right now. Chart 2 shows the Russell 2000 ETF (IWM) holding up better than QQQQ. Notice that IWM held above the 10-May gap and firmed with an indecisive candlestick today. Follow though above 72 would be quite positive for IWM, small-caps and the market overall. Conversely, a break below todays low would be negative.
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Chart 1
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Chart 2
SEMICONDUCTOR, NETWORKING AND INTERNET ETFS LEAD TECH SECTOR... These three groups make up a significant portion of the technology sector. Before commenting on the individual charts, notice that all three found support near their 62% retracements. All three gapped higher with the rest of the market last week. These gaps are now turning into support zones and the first test. Chart 3 shows the Semiconductors HOLDRS (SMH) forming a white candlestick today with a strong close. Chart 4 shows the Networking iShares (IGN) firming with an indecisive candlestick today. Notice that last weeks gap is holding. Chart 5 shows the Internet ETF (FDN) also holding last weeks gap with an indecisive candlestick today. The swing remains down on all three charts and follow-through above the April trendline would be positive.
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Chart 3
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Chart 4
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Chart 5
INTEL, CISCO AND GOOGLE HOLD THE KEY TO TECH GROUPS... These three stocks come to mind with the three industry groups above. They are large-caps and leaders within their respective industries. These three are also important stocks for the Nasdaq and Nasdaq 100. Chart 6 shows Cisco (CSCO) trying to firm near its 62% retracement for the second time in two weeks. The stock surged above 26.5 last week, but fell back below 25 over the last three days. A hammer formed on Monday as the stock attempts to hammer out a bottom near the 62% retracement. Chart 7 shows Intel (INTC) trying to firm within last weeks gap zone. The stock bounced off the 62% retracement last week and pulled back sharply on Thursday-Friday. With a strong close today, the stock is finding some support from last weeks gap. Chart 8 shows Google (GOOG) breaking support in early May and broken support turning into resistance. GOOG bounced last week and then firmed around 500-520 the last few days. A break above last weeks high would be positive for the stock and the technology sector.
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Chart 6
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Chart 7
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Chart 8
WEAKNESS IN GLOBAL EQUITIES WEIGHS ON OIL... Equity markets lead the economy, but the lead time is open for debate. Nevertheless, equity markets often move higher ahead of an economic upturn and move lower ahead of an economic downturn. Even though oil is sensitive to the Dollar, it is also sensitive to changes in demand, which hinges on the economy. A strong economy means increasing demand for energy related products. A weak economy means decreasing demand. Recent weakness in European equity markets is weighing on other equity markets and this is putting a damper on future economic growth. I am not saying weakness in equities is going to negatively impact economic growth. Instead, I am suggesting that weakness in equities points to weakness in the economy down the road. PerfChart 9 shows oil with seven equity indices (US, Canada, London, Europe, China, Japan, Australia). Oil is down around 15% in the past month. The Shanghai Composite ($SSEC) is also down around 15%. London and Europe are down around 10%. The US and Canada are holding up the best. Such weakness in Europe and Asia points to slower economic growth and this is weighing on oil.
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Chart 9
OIL ETF HITS SUPPORT ZONE AND BECOMES OVERSOLD ... With further weakness today, oil is trading in the low 70s, an area last seen in December and February. Chart 10 shows weekly candlesticks for the US Oil Fund ETF (USO). The ETF has been range bounce since August with support in the 33-34 area and resistance in the 42 area. The ETF declined sharply the prior two weeks and started this week with another decline. A big support test is at hand. The indicator window shows USO with the S&P 500. Notice how both moved higher from February-March 2009 until April 2010. The S&P 500 remains above its September-February lows, but USO broke these lows with further weakness today. Chart 11 shows daily RSI becoming oversold for the first time since February 2009. Even though the daily trend remains down, USO is oversold and ripe for a bounce. The only challenge is catching a falling knife. Clues may come from the equity and currency markets. An upturn in global equities and the Euro would benefit oil. However, this has yet to happen. Europe was mixed, at best, on Monday. Asian stocks were down on Monday with the Shanghai Composite ($SSEC) falling 5%.
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Chart 10
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Chart 11
WEAKNESS IN OIL PUSHES XLE AND OIH TO SUPPORT ... Charts 12 and 13 show the Energy SPDR (XLE) and the Oil Service HOLDRs (OIH) near support zones that extend back to October-November. Unsurprisingly, these two ETFs are highly correlated to the price of oil. The indicator windows show each ETF with USO (red). Both track oil quite closely. Notice that OIH is more sensitive than XLE. XLE is down around 11% from its late April high and OIH is down over 17% from its late April high. This is because the big integrated oil companies are more diversified than oil service companies. For example, Chevron and ExxonMobil have downstream operations. Oil service companies are one-trick ponies. On the price chart, the Energy SPDR is trading near support that extends back to early November. The ETF has been swinging rather wildly the last 7-8 months. There was even a failed breakout in late April. Even though support is near and an oversold bounce is increasingly likely, the current swing within this range remains down. OIH has closing price support around 110. As with XLE, the ETF is short-term oversold and near support, which argues for a bounce. Also notice that OIH tested support in early May and is doing a little double dip this week (green arrows).
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Chart 12
