SPY AND DIA STALL NEAR RESISTANCE ZONES -- SEMICONDUCTORS HOLDRS SURGES TO RESISTANCE -- INTEL LEADS AS APPLE LAGS -- FINANCE SPDR AND REGIONAL BANK SPDR HIT RESISTANCE -- BASE METALS ETF BACKS OFF RESISTANCE
SPY AND DIA STALL NEAR RESISTANCE ZONES... Link for todays video. After a big surge the last six days, stocks took a breather with mixed action on Wednesday. The Nasdaq edged higher, but the S&P 500 and Russell 2000 were lower on the day. Chart 1 shows the S&P 500 ETF (SPY) stalling just below 110. Even though SPY exceeded the 50-62% retracement zone shown on Tuesday morning, I still see a bigger resistance zone in the 110-113 area on the daily charts. The lower part of this zone stems from the late May and early June highs as well as the April trendline. The upper part stems from the mid June high. In addition to price resistance, RSI entered the 50-60 resistance zone over the last few days. This zone defines the downtrend so far by acting as resistance in early May and mid June. SPY is up over 6% the last seven days and short-term overbought. We do not need a momentum oscillator to figure that one out. The combination of price/RSI resistance and short-term overbought conditions argue for a consolidation or resumption of the bigger downtrend. Chart 2 shows the Dow SPDR (DIA) with similar characteristics.
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Chart 1
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Chart 2
SEMICONDUCTORS HOLDRS SURGES TO RESISTANCE... The Semiconductors HOLDRS (SMH) has been featured a few times already this month. SMH was featured in the Market Message on July 2nd as it tested support. There was a follow up on July 7th as the ETF bounced off range support. With further gains the last 3-4 days, chart 3 shows the ETF challenging range resistance for at least the third time since May. Overall, SMH has been range bound with support in the 25.5-26 area and resistance in the 28.5-29 area. The seven day surge from support to resistance shows strength, but the ETF is short-term overbought and already showing signs of selling pressure. SMH opened at 28.74 and moved lower after the open to form a red candlestick. This affirms the resistance zone. The Stochastic Oscillator moved to overbought levels for the third time since early June (above 80). The odds of a pullback are above average with the stock at range resistance and the Stochastic Oscillator overbought.
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Chart 3
INTEL LEADS AS APPLE LAGS... Intel (INTC) led the Semiconductors HOLDRS higher on Wednesday as traders reacted favorably to last nights earnings report. Chart 4 shows INTC gapping above the wedge trendline and breaking above its mid June high the last two days. These breakouts, however, have yet to hold as INTC has yet to actually close above resistance. The stock surged above 22 yesterday and today, but did not hold its gain and closed below 22. Broken trendline resistance turns into the first support zone to watch on any pullback.
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Chart 4
Despite a surging stock market the last seven days, chart 5 shows Apple (AAPL) failing to follow through to last weeks big move and edging lower the last four days. The stock has yet to actually break down, but signs of selling pressure are visible with OBV moving below its June low. A large bearish divergence formed between OBV and the stock price. AAPL hit a new high in late June, but OBV formed a lower high. Also notice that volume on down days has been outpacing volume on up days the last few weeks. Joe Granville, creator of OBV, theorized that volume leads price. Should volume lead price now, we could see Apple move towards support in the low 230s.
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Chart 5
FINANCE SPDR AND REGIONAL BANK SPDR HIT RESISTANCE... The Financials SPDR (XLF) and the Regional Bank SPDR (KRE) led the market higher over the last seven days, but stopped short of resistance breakouts and led the market lower on Wednesday. Chart 6 shows the Financials SPDR surging 10% with a move to resistance at 15. Resistance in this area stems from the late May and mid June highs. Even though the trendline break and big surge are positive, a definitive trend reversal requires a higher high. The indicator window shows the price relative, which compares the performance of XLF to the S&P 500. XLF has been holding its own since early June as the price relative edged higher the last six weeks. A little relative strength is certainly positive. Now, show me the breakout.
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Chart 6
Chart 7 shows the Regional Bank SPDR with a channel breakout and surge to resistance around 25. While the 10% surge and channel break are positive, the ETF has yet to take out its prior high and fully reverse the downtrend. KRE formed a long red candlestick on Wednesday to affirm resistance. The price relative reversed its downtrend with a trendline break and move above the late June high. This relative strength is positive, but we still need a higher high (breakout) on the price chart to confirm.
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Chart 7
BASE METALS ETF BACKS OFF RESISTANCE... The DB Base Metals ETF (DBB) consists of three industrial metals: aluminum, copper and zinc. Aluminum weighs around 34.5%, copper accounts for 35.75% and zinc weighs in around 29.70%. Even though there are more then three industrial metals, this ETF has a relatively large weighting in copper, which is perhaps the most important industrial metal. Demand for industrial metals depends on global economic growth. Base metals should rise in price when the economy/demand is strong and fall when the economy/demand is weak. With this logic, we can use base metals as a leading indicator for the economy and the stock market. Chart 8 shows DBB surging in the first part of June and then trading flat the last five weeks. The ETF established resistance at 19 and support around 17.7. I am watching this range for clues on the stock market. An upside breakout would be bullish for DBB and stocks. Conversely, failure to break resistance and a move below support would be bearish. At this point, I would give the edge to the bears because the ETF has yes to break resistance and moved lower three of the last five days.
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Chart 8
Chart 9 shows the Materials SPDR (XLB), which is quite dependent on base metal prices. On the price chart, XLB surged to the upper trendline of a falling wedge. A breakout in DBB would be especially bullish for XLB. As with SPY, the overall trend remains down with a series of lower lows and lower highs. There is a large resistance zone around 31.5 coming into play soon.
