TECHS LEAD MARKET LOWER WITH OUTSIDE REVERSALS -- CONSUMER DISCRETIONARY SPDR BATTLES RESISTANCE -- RETAILERS WEIGH ON CONSUMER DISCRETIONARY SECTOR -- MACYS, TARGET AND BEST BUY MOVE SHARPLY LOWER -- GOLD MOVES BACK BELOW RESISTANCE BREAKOUT

TECHS LEAD MARKET LOWER WITH BIG OUTSIDE REVERSALS... Link for todays video. Stocks started the day strong, but gave up early gains and moved into negative territory in the afternoon. Techs were especially weak with the Nasdaq and Nasdaq 100 leading the market lower. Chart 1 shows the Nasdaq 100 ETF (QQQQ) opening at 47.60, which was +1.20% gap up on the open. These gains did not last long as the ETF moved lower after the gap. Todays long red candlestick completely engulfed the prior candlestick. This is also an outside reversal pattern, which is a short-term bearish reversal pattern. Today is considered an outside day because the high-low range was greater than Fridays high-low range. Today is considered a reversal day because the open was above the prior high and the close is below the prior close. The size of todays intraday reversal establishes resistance around 47.7, which is confirmed by a 62% retracement of the prior decline. Yes, I ignored the May 6th flash crash low. Chart 2 shows the Dow SPDR (DIA) hitting resistance in the 50-62% retracement zone with a long red candlestick.

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Chart 1

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Chart 2

CONSUMER DISCRETIONARY SPDR BATTLES RESISTANCE... Relative weakness in the Consumer Discretionary SPDR (XLY) and the Retail SPDR (XRT) remains a concern for the overall market. As its name implies, the consumer discretionary sector is based on businesses that sell discretionary products. Industry groups include electronics, clothing, department stores, games, restaurants, housing, home improvement and cars. Sales are buoyant in good times, but subdued in bad times. This makes it one of, if not the, most economically dependent sector. Most estimates suggest that retail spending drives 2/3 of GDP, which makes retailers an important part of this sector. Chart 3 shows the Consumer Discretionary SPDR (XLY) battling resistance from its late May and early June high. SPY and DIA, on the other hand, are trading well above this corresponding resistance level. XLY closed above resistance last Monday, but fell back over last four days. XLY has so far failed to take out resistance and reverse the May-June downtrend. The decline over the last five days could be a falling flag, but a break above the five day high is needed to turn XLY around. The indicator window shows the price relative, which shows the performance of XLY relative to SPY. This indicator has been flat the last two months and turned down over the last five days. A break below the May lows would show relative weakness that would be negative.

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Chart 3

RETAIL STOCKS WEIGH ON CONSUMER DISCRETIONARY SECTOR AND MARKET... I noted relative weakness in the Retail SPDR (XRT) on Friday and the ETF was hit hard on Monday. Chart 4 shows XRT falling over 1% with its fourth red-filled candlestick in a row. This means the close was down on the day and below the open four days in a row. Four days of selling pressure. The overall trend remains down as XRT failed to reach resistance from the late May and early June highs. Failure to reach these levels shows relative weakness - relative to SPY and DIA that is. This four day decline reinforces resistance in the 40.5-41 area. A break above 41 is needed to reverse the eight week downtrend. The indicator window shows the price relative breaking below its May low. XRT clearly shows relative weakness and this bodes ill for the consumer discretionary sector and the market overall.

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Chart 4

MACYS, TARGET AND BEST BUY MOVE SHARPLY LOWER ... Chart 5 shows Macys (M) hitting resistance from broken support and forming a triangle over the last five weeks. Last weeks low high (below 23) reflected weak buying pressure on the last bounce. A break below triangle support would signal a continuation of the May decline. Chart 6 shows Target (TGT) failing to reach resistance and falling sharply over the last 2-3 days. Chart 7 shows Best Buy (BBY) surging to resistance in mid June and then gapping sharply lower five days ago. This leading electronics retailer is leading the Retail SPDR lower.

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Chart 5

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Chart 6

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Chart 7

GOLD MOVES BACK BELOW RESISTANCE BREAKOUT... The Gold ETF (GLD) broke above resistance from its May-June highs last week, but fell back with a sharp decline today. Gold started the day flat and selling pressure kicked in around noon, which is also when oil and stocks encountered heavy selling. Chart 8 shows GLD surging above 122 on Friday and moving back below 121 today. While todays long red candlestick negates last weeks breakout, it is not enough to reverse the overall uptrend. The reaction lows of the prior two weeks mark first support at 118.70. This level has not even been tested yet. Major support remains around 114 from the mid May reaction low.

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Chart 8

BONDS AND THE DOLLAR BENEFIT FROM MARKET TURMOIL... With oil, gold, stocks and the Euro moving sharply lower, there were only two places to turn. Suddenly, the risk-on trade was replaced with the risk-off trade. The last big risk-off trade occurred in May when money moved into bonds, gold at the expense of stocks, oil and the Euro. Gold did not attract funds today, but bonds and the Dollar did. Chart 9 shows the 20+ Year Treasury ETF (TLT) opening with a large gap and then moving higher throughout the day. After a huge surge in April-May, TLT formed a triangle consolidation. I am watching these boundaries for the next directional clue. A break above the June highs would signal a continuation higher. This would most likely reflect another flight to safety that would be negative for stocks. Conversely, a break below support at 96 would be a negative development. This would show money moving out of bonds (safety), which would most likely benefit stocks. Chart 10 shows the DB Dollar Bullish ETF (UUP) finding support near broken resistance and the mid May reaction low around 25. This area also marks a 38% retracement of the April-June advance.

Chart 9

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Chart 10

BLACK FILLED CANDLESTICKS VERSUS RED HOLLOW CANDLESTICKS... There are four types of colored candlesticks on SharpCharts. A candlestick is black when the close is up and red when the close is down. A candlestick is hollow when the close is greater than the open and filled when the close is below the open. The image below shows the four possibilities.

First, lets examine the black filled candlestick. Chart 11 shows 10-minute chart for the XLB. The ETF opened around 31.5 with a gap up and moved 31.8 in the first hour. Selling pressure took hold after this initial surge and the ETF declined below its open in the afternoon. The close (31.14) was still above the prior close, but well below the open. This means the resulting candlestick was filled and black. Filled candlesticks represent selling pressure after the open. Chart 12 shows the daily candlestick resulting from todays intraday trading.

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Chart 11

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Chart 12

Red hollow candlesticks reflect a move higher after the open, but the close remains below the prior close. Chart 13 shows the 20+ Year Treasury ETF (TLT) opening sharply lower and then moving higher after the open. Despite strong recovery after the gap, the ETF still closed below the prior open. This means the candlestick will be hollow and red. Hollow candlesticks reflect buying pressure after the open. Chart 14 shows the daily candlestick resulting from todays intraday trading.

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Chart 13

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Chart 14

Filled black candlesticks and red hollow candlesticks are not considered reversal patterns in and of themselves. They simply reflect price action that warrants our attention. Todays filled candlestick tells us that XLB opened strong and moved lower after the open. Buying pressure evaporated soon after the open, which is negative. Bonds, conversely, opened weak and moved higher after the open. Selling pressure ceased soon after the open, which is positive.