BANKS, REITS AND BROKERS WEIGH ON THE MARKET -- LATE SELLING PRESSURE PUSHES TECHS IN THE RED -- INDUSTRIALS AND ENERGY SPDRS FORM PIERCING LINES -- FINANCE AND CONSUMER DISCRETIONARY SPDRS FORM ENGULFING LINES
BANKS, REITS AND BROKERS WEIGH ON THE MARKET... Link for todays video. Weakness in finance related stocks weighed on the overall market on Monday. The European debt crisis and financial reform in the US are the clouds of uncertainty overhanging the banking stocks. Gains one day are met by selling the next day. Chart 1 shows the Regional Bank SPDR (KRE) giving back all of Fridays gains with a close below last weeks low. Despite todays loss, there are technical reasons for possible support around 25. First, broken resistance turns into support. Second, the 62% retracement marks potential support. Fridays white candlestick and intraday reversal reinforce support here, but we have yet to see follow through. Todays decline establishes the first short-term resistance level to watch. A break above this level would be quite positive.
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Chart 1
Chart 2 shows the REIT iShares (IYR) with a bullish engulfing at potential support around 46-47. Broken resistance and the 62% retracement mark support here. The bullish engulfing affirms support, but we have yet to see follow through here either. IYR opened strong today, but closed weak to establish the short-term resistance just above 49. Chart 3 shows the Broker-Dealer iShares (IAI) testing the February low with a big bullish engulfing on Friday. There was, however, no follow through today as the ETF formed an inside day. Look for a move above the Friday-Monday highs to trigger a short-term breakout. Barring follow through breakouts, the downtrends dominate and buying pressure remains weak.
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Chart 2
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Chart 3
LATE SELLING PRESSURE PUSHES TECHS IN THE RED... Tech stocks showed some strength on Monday, but late selling pressure pushed the Nasdaq 100 ETF (QQQQ) into the red. Chart 4 shows QQQQ with a recovery on Friday and a push above 45 intraday on Monday. Actually, QQQQ pushed above 45 on Friday as well. Despite some intraday buying pressure, the ETF was not able to close strong. QQQQ formed a candlestick with a long upper shadow today and closed near the low of the day. There is resistance just below 46 from last weeks gap and Fridays high. Look for a move above 46 to fill the gap and show some real strength. Chart 5 shows Apple (AAPL) opening above 245 and surging above 250 intrday, but moving back below its open and closing near the low for the day. Apple accounts for over 18% of QQQQ. Chart 6 shows Google (GOOG) gapping up on the open and surging above 489. However, the stock moved back below its open and closed near the low. The inability to hold these early gains shows underlying weakness. A move above todays high is needed to revive the bulls.
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Chart 4
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Chart 5
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Chart 6
INDUSTRIALS AND ENERGY SPDRS FORM PIERCING LINES... After a sharp decline the previous six days, many ETFs and stocks firmed on Friday with bullish candlestick reversals. In particular, there were a number of piercing and bullish engulfing patterns on Friday. The pre-defined scans page at Stockcharts.com picked up 311 stocks with bullish engulfing patterns on the Nasdaq and a whopping 720 on the NYSE. There were 193 stocks with piercing lines on the Nasdaq and 561 on the NYSE. Clearly, there were more bullish reversal patterns on the NYSE than the Nasdaq. Just what are these patterns anyway? A piercing line is a two candlestick pattern. First, a long black candlestick forms in a short-term downtrend. The second candlestick opens below the prior low and then closes above the midpoint of the prior candlesticks body. The open-close range defines the body. Chart 7 shows the Industrials SPDR (XLI) with a piercing line on Friday. Prior to Fridays gain, the ETF was down six days straight and in the falling knife club. Fridays piercing line stopped the knife and affirms support around 28.5. Chart 8 shows the Energy SPDR (XLE) with a piercing line below the February low. XLE has yet to follow through on Fridays reversal day. I am marking short-term resistance at 53.4 and a break above this level is needed to show follow through.
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Chart 7
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Chart 8
FINANCE AND CONSUMER DISCRETIONARY SPDRS FORM ENGULFING LINES... A bullish engulfing is also a two candlestick pattern. First, a black candlestick forms in a short-term downtrend. The second candlestick opens below the close of the first and then closes above the open of the first. This means the body of the second white candlestick completely engulfs the body of the first black candlestick. Chart 9 shows the Consumer Discretionary SPDR (XLY) forming a bullish engulfing near broken support and the 62% retracement mark. Chart 10 shows the Financials SPDR (XLF) with a bullish engulfing on Friday and no follow through on Monday. Resistance was established at 15 the last two days and this is the first level to watch. Also notice that the price relative is trending lower as XLF shows relative weakness.
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Chart 9
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Chart 10
BULLISH CANDLESTICKS ARGUE FOR SHORT-TERM SUPPORT... Technically, bullish candlestick reversal patterns that consist of 1-2 candlesticks require confirmation with further gains (follow through). In addition, keep in mind that candlestick patterns are short-term and last 1-2 weeks maximum. Stocks were quite oversold after last weeks decline and Fridays opening gap down. The ability to rally at the end of the week was likely driven by a combination of short covering, profit taking, bargain hunting and bottom picking near the February lows. Solid follow through distinguishes oversold bounces from sustainable advances. Therefore, I would view these bullish reversal patterns as signs of support, not necessarily bullish signals. More evidence is needed before calling for the end of the current downswing. Further more, a little basing may be required to repair the technical damage of the last four weeks. Chart 11 shows the Russell 2000 ETF (IWM) with a piercing line on Friday. Notice that IWM also has support around 64 from broken resistance, the 62% retracement and the early May low. However, we have yet to see follow through on the piercing line with a break above 66. In addition, last weeks gap remains unfilled. Chart 12 shows the Dow SPDR (DIA) with a piercing line last week and no follow through on Monday. Follow through above 102 is needed.
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Chart 11
