STOCKS GIVE UP EARLY GAINS -- DISCRETIONARY AND INDUSTRIALS SECTORS BATTLE KEY RETRACEMENTS -- FINANCE AND TECHNOLOGY SECTORS BATTLE FEBRUARY LOWS -- TRANSPORT GETS A LIFT -- AIRLINE INDEX SHOWS RELATIVE STRENGTH
STOCKS GIVE UP EARLY GAINS... Link for todays video. Stocks opened strong and remained in positive territory most of the day, but afternoon selling pressure erased early gains. The S&P 500 and S&P 100 (large-caps) finished in negative territory, but the Russell 2000 and S&P 600 (small-caps) finished slightly positive. Chart 1 shows 10-minute bars for the Dow SPDR (DIA). I am showing DIA instead of the Dow Industrials to emphasize the last two gaps. DIA gapped sharply lower on Tuesday, but recovered most of the loss with a close above 100. Buying pressure continued with a gap up on Wednesday morning, but the bulls were not able to follow through with a strong close. There may be some nervousness heading into a three day weekend. DIA established resistance in the 101.5-102 area the last four days. A follow through break above this level is needed to spur the bulls.
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Chart 1
DOW TESTS FEBRUARY LOW... Chart 2 shows the Dow Industrials battling support around 9800-10000 the last few days. Big round numbers like 10,000 are usually more psychological than technical, but this number appears to have some technical merit. The Dow bounced off the 9800-10000 level in February to establish support here. A break (close) below 9800 would forge a lower low and reverse the uptrend that has been in place over a year. Also notice that the Dow is trading below its 200-day moving average. The indicator window shows the Commodity Channel Index (CCI), which is a momentum oscillator. After becoming deeply oversold in early May, the indicator popped back above -100 and the back below. This action looks similar to what happened in January-February. This correction ended when CCI broke above the reaction high separating the oversold dips. At this point, I would look for CCI to break into positive territory before considering momentum bullish again.
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Chart 2
CONSUMER DISCRETIONARY AND INDUSTRIALS SECTORS BATTLE KEY RETRACEMENTS... In addition to the major indices, there are a number of key sectors testing important support levels. Prices are shown as gray bars to capture all the intraday action (volatility) and a 2-day EMA is shown in pink to filter out the volatility. The Industrials SPDR (XLI) and the Consumer Discretionary SPDR (XLY) are trying to firm near their 62% retracement marks. With the S&P 500 trading near its February lows already, these two sectors show relative strength by holding well above their February low. Chart 3 shows XLI trying to firm around 29. The November trendline, 62% retracement and broken resistance mark support in the 28.6-29.3 area.
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Chart 3
Chart 4 shows XLY finding support around 31. This support zone stems from broken resistance, the 62% retracement and the November trendline as well. Both charts are shown with the price relative. Relative performance has flattened in the last few weeks, but both price relatives are trending up. Failure to hold support on the price charts and breakdowns in the price relatives would be quite negative for these two leaders.
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Chart 4
FINANCE AND TECHNOLOGY SECTORS BATTLE FEBRUARY LOWS... The Financials SPDR (XLF) and the Technology SPDR (XLK) tested their February lows over the last few days. Chart 5 shows XLF giving back most of its February-April advance with the May decline. Support in the 13.5-13.75 area stems from the November-February lows. In fact, this support zone extends all the way back to late August. Failure to hold the big March breakout is negative. A break below support extending back to August would be quite bearish. The price relative is shown trending lower in the indicator window. XLF also underperformed during the January-February correction. A breakout in the price relative is needed to confirm a successful support test.
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Chart 5
Chart 6 shows XLK returning to the February lows at least twice this month. XLK forged a new 52-week high in late April and is already on the verge of breaking an important support level. Failure to hold these key lows would be negative for the market and bearish for XLK. The price relative shows XLK barely outperforming SPY over the last four months.
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Chart 6
TRANSPORT ETF ATTEMPTS TO BOUNCE AT RETRACEMENT SUPPORT ... Chart 7 shows the Transport ETF (IYT) battling for support near the 62% retracement mark. IYT declined with the rest of the market, but the depth of the decline looks normal - so far. First, the decline retraced 62% of the prior advance. Second, broken resistance turns into support around 76. IYT formed a long white candlestick last week and reversed after a sharp decline on Tuesday. Todays follow through was looking strong, but the ETF closed well off its high as selling pressure hit the market. A close above todays high is needed to produce a meaningful follow through. The indicator window shows IYT with the Dow SPDR (DIA). Notice that IYT held up much better than DIA during the five week decline. DIA almost hit its February low (closing), but IYT held well above its February low. Less weakness during a decline is the same as relative strength.
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Chart 7
AIRLINE INDEX PRICE RELATIVE HITS NEW HIGH... Chart 8 shows the Amex Airline Index ($XAL) challenging the April trendline with a surge today. The index was up over 4% in early afternoon trading, but failed to hold these gains and finished up just over 2%. Nevertheless, the index has been showing relative strength the last few weeks. $XAL plunged with the rest of the market in early May and tested its May low last week. In contrast to many other indices, $XAL held above its early May low and showed less weakness. The indicator window shows the price relative, which reflects $XAL performance relative to the S&P 500. The price relative rises when $XAL outperforms and falls when $XAL underperforms. Notice that the price relative bottomed the first week of May and broke above its March-April highs today. This also shows relative strength in airlines. On an anecdotal note, the combination of falling oil prices, full flights and the summer travel season could be putting a bid into airline stocks.
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Chart 8
US AIR, AMERICAN, JETBLUE AND CONTINENTAL STAND OUT... Chart 9 shows American Airlines (AMR) finding support around 6.5 in May and then surging above 7.5 the last two days. Volume was above average on Tuesday and Wednesday. Chart 10 shows Continental (CAL) finding support from broken resistance around 17-18 and surging over the last two days. Volume could have been higher though. Chart 11 shows JetBlue (JBLU) finding support around 5.2-5.4 in May and then surging above 6 today. The stock is up four days straight, but volume was not above average. Chart 12 shows US Airways (LCC) breaking resistance at 7.5 on Tuesday and surging to a new 52-week high today. The stock was up on high volume three of the last six days.
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Chart 9
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Chart 10
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Chart 11
