FINANCE SECTOR LEADS MARKET REBOUND -- AXP, FITB AND PNC LEAD BANKS -- SEMICONDUCTOR HOLDRS BOUNCES OFF RANGE SUPPORT -- ALTR, BRCM AND XLNX LEAD SEMIS -- XLU CONTINUES TO SHOW RELATIVE STRENGTH -- AEP, CMS AND DUK LEAD UTILITIES
FINANCE SECTOR LEADS MARKET REBOUND... Link for todays video. Stocks rebounded with a broad advance that lifted most boats. Advances led declines 6 to 1 on the NYSE and 3.5 to 1 on the Nasdaq. All major indices were up sharply. All sectors were higher with finance leading the charge. Chart 1 shows the Financials SPDR (XLF) breaking below its February-May-June lows early this month and then bouncing back above broken support with a big move today. XLF was oversold after the decline from 15 to 13.5 and some sort of bounce or consolidation can be expected. Despite todays move back above broken support, the overall trend remains down as a falling wedge takes shape. One day is not enough to reverse this 2-3 month downtrend. First, XLF has yet to break the wedge trendline. Second, the ETF formed lower lows in June-July and has yet to take out its mid June high. Follow through holds the key here. A one day oversold bounce can be expected at this stage. Lets see if XLF can follow through in the coming days.
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Chart 1
The indicator window shows XLF relative too the S&P 500. XLF outperformed from early February to mid April, underperformed from mid April until early June and has performed in-line since early June. The price relative popped in late June and held above its June low in early July. This is a start to possible outperformance that we should watch.
Chart 2 shows the Regional Bank SPDR (KRE) surging with a big move today. Despite the big gain, the overall trend remains down and KRE remains relatively weak. KRE moved to a new low in July to keep the downtrend alive. A falling channel has taken shape and KRE has yet to even challenge the upper trendline. Follow through is needed before taking todays surge seriously. KRE is not even close to its last reaction high, which marks resistance around 25. Relative to the S&P 500, KRE continues to show relative weakness as the price relative forged a lower low in early July. The price relative is trending lower and a break above the late June reaction high is needed to reverse this underperformance.
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Chart 2
AXP, FITB AND PNC LEAD BANKING STOCKS... Chart 3 shows American Express (AXP) holding above its late May and early June lows. The stock retraced around 62% of the June surge by finding support near 39 late last week. With todays weak open and strong close, the stock formed a bullish engulfing to reinforce support and forge a higher low. Volume so far is not that impressive, but it would take a move back below 39 to negate this surge. Chart 4 shows Fifth Third Bancorp (FITB) with a falling wedge over the last two months. FITB surged back above its May-June lows with a long white candlestick. Volume was not impressive though. Chart 5 shows PNC Financial (PNC) with a massive move on big volume. The stock remains within its falling wedge, but this move on big volume looks strong.
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Chart 3
Chart 4
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Chart 5
SEMICONDUCTOR HOLDRS BOUNCES OFF RANGE SUPPORT... The Semiconductors HOLDRS (SMH) held range support by surging over 3% on Wednesday. Chart 6 shows SMH within a trading range bound by 25.5-26 at the bottom and 28.5-29 at the top. The ETF bounce off support at least four times and resistance at least twice. The early June bounce fell short. SMH firmed at range support on Thursday-Friday, got a small bounce Tuesday and surged today. This move reinforces support - once again. This chart was featured on Friday with StochRSI. With the S&P 500 and Nasdaq breaking below their late May and early June lows, SMH shows a little less weakness, which translates into relative strength. Also notice that SMH is held well above its February lows. This also shows less weakness.
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Chart 6
The indicator window shows the Fast Stochastic Oscillator. There are two distinct periods here. First, the Stochastic Oscillator held above 50 from early February until late April as SMH advanced within an uptrend. 50 acts as the centerline that defines the trend bias. Typically, the indicator ranges from 50 to 100 during an uptrend and from 0 to 50 during a downtrend. Adjustments may be required based on a securitys volatility. The second period shows the Stochastic Oscillator during a trading range (May to present). Instead of staying in the upper or lower half of the Stochastic range, notice how the indicator dipped below 20 (oversold) three times and exceeded 80 (overbought) twice. The indicator is once again turning up from oversold levels.
ALTR, BRCM AND XLNX LEAD SEMIS... There are a number of chip stocks holding up better than the S&P 500 and Nasdaq over the last two months. Both indices broke below their late May and early June lows, but the following three stocks held well above corresponding lows to show relative strength. Chart 7 shows Altera (ALTR) finding support near broken resistance (24.5) last week and surging above flag resistance with a big move today. Chart 8 shows Broadcom (BRCM) hitting its low with the early May flash-crash and then forming higher lows in mid May, early June and early July. The stock surged over 4% with a long white candlestick today. Chart 9 shows Xilinx (XLNX) finding support around 25 and surging above flag resistance with a big move today. The stock is up two days straight with above average volume.
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Chart 7
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Chart 8
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Chart 9
XLU CONTINUES TO SHOW RELATIVE STRENGTH ... The Utilities SPDR (XLU) continues to hold up better than the market. Chart 10 shows XLU holding above its June low and surging over 2% today. The May-June lows mark the line in the sand for many stocks, ETFs and indices. Those that broke these lows show relative weakness. Those that held show less weakness - or relative strength. With a lower high in mid June and a higher low in early July, the ETF traced out a large triangle consolidation the last two months. Resistance from the May-June highs marks the next test. The indicator window shows the price relative, which defines the performance of XLU relative to SPY. Notice that the price relative bottomed in mid April and moved steadily higher the last few months. XLU shows relative strength. Utilities are traditionally defensive stocks that benefit in times of turmoil. Utilities also offer relatively higher yields.
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Chart 10
AEP, CMS AND DUK LEAD UTILITIES SECTOR... Within the utilities sector, chart 11 shows American Electric Power (AEP) surging with good volume over the last two days. Notice how the stock retraced 50-62% of the May-June advance with the pullback to around 32. A falling wedge formed and the stock broke wedge resistance with a big move. AEP is now nearing resistance from the March-April-June highs. Chart 12 shows CMS Energy (CMS) surging above the upper trendline of a falling wedge with a big move on Wednesday. Volume is not strong though. Chart 13 shows Duke Energy (DUK) breaking its wedge trendline with a big surge over the last three days. Along with XLU, also notice that AEP, CMS and DUK held well above their late May-early June lows. In contrast, SPY broke its late May-early June lows. These three utility stocks also show relative strength.
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Chart 11
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Chart 12
