NASDAQ HOLDS BREAKOUT AS RESISTANCE TURNS SUPPORT -- NECKLINE RESISTANCE TURNS SUPPORT FOR S&P 500 -- RETAILERS SHOW RELATIVE STRENGTH THROUGHOUT SEPTEMBER -- SEMIS SPRING TO LIFE AND LEAD MARKET HIGHER -- NET NEW HIGHS REACH HIGHEST LEVEL SINCE APRIL
NASDAQ HOLDS BREAKOUT AS RESISTANCE TURNS SUPPORT... Link for todays video. The Nasdaq broke above its July-August highs with the September surge and broken resistance turned into support this week. After breaking resistance around 2300, chart 1 shows the index pulling back mid week and then surging on Friday. Broken resistance turning into support is a basic tenet of technical analysis. With Fridays surge, this weeks lows now mark the first support level to watch for signs of a correction or extended pullback. The indicator windows show volume and On Balance Volume (OBV). Even though September volume has been mostly below average, OBV surged above its summer highs. Also notice that OBV formed a higher low in mid August and a small bullish divergence the last two weeks of August. Even though Nasdaq volume is not expanding this month, volume is clearly on the buy side with OBV rising 13 of the last 17 days. On Balance Volume is a cumulative indicator. Volume is added on up days and subtracted on down days.
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Chart 1
S&P 500 HOLDS NECKLINE BREAKOUT... Chart 2 shows the S&P 500 ($SPX) breaking above neckline resistance with a surge on Monday. Like the Nasdaq, the index pulled back mid week and then surged on Friday. This surge affirms that broken resistance is turning into support. More importantly, the neckline breakout is holding. This weeks low now marks the first support level to watch. A sharp move back below 1120 would imperil the neckline breakout.
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Chart 2
The indicator windows shows MACD(12,26,9) and TRIX(10,6). TRIX is a triple smoothed momentum oscillator. As you can see from the chart, MACD and TRIX have similar line shapes. However, TRIX is clearly much smoother than MACD. For instance, notice that TRIX did not dip below its signal line in early June. Admittedly, signal line crossovers did not produce good signals in MACD and TRIX over the last few months. There was a lot of whipsaw. Both have been in bull mode since the first week of September and have yet to rollover.
RETAILERS SHOW RELATIVE STRENGTH THROUGHOUT SEPTEMBER... Most of us have heard that retail spending accounts for some 2/3 of GDP. In addition, the retail group is an important component of the consumer discretionary sector, which is the most economically sensitive sector. This makes retail one of the most important industry groups to watch. Chart 3 shows the Retail SPDR (XRT) leading the market higher since early August. First, notice that the price relative bottomed at the beginning of August and moved steadily higher. The price relative is a ratio plot (XRT:SPY). The ratio rises when XRT outperforms and falls when XRT underperforms. On the price chart, XRT broke above its August high and never looked back. After a short stall this week, the ETF is back at its again today with a surge above 41. XRT is a broad-based ETF with over 60 stocks. Moreover, the top weighting is just 1.73% (Carmax). With the components relatively equal in weighting, this makes the ETF a good barometer for the retail industry. Wal-Mart weights just 1.48%. Even though relative strength and the strong September move are bullish, the ETF is getting overextended and trading near its 62% retracement. Chart 4 shows the Retail HOLDRS (RTH) with similar characteristics. Wal-Mart is the biggest component (19.74%), followed by Home Depot (12.81%) and Amazon (11.32%). The three biggest components account for over 40%.
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Chart 3
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Chart 4
SEMIS LEAD TECHNOLOGY HIGHER THIS WEEK... Wednesday I wrote about relative weakness in the semiconductor group. While relative weakness was a concern, it was more than offset by relative strength in the other three big tech groups (networking, software and internet). After dipping on Tuesday-Wednesday, chart 5 shows the Semiconductor HOLDRS (SMH) gapping higher today and surging above 27 with a long white candlestick. The ETF started showing relative strength on Thursday with a white candlestick and positive close. Thursdays low now marks the first support level to watch. Moreover, the short-term trend is up with the next resistance zone around 28.5-29. The indicator window shows the price relative bottoming in mid September and turning higher the last two weeks.
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Chart 5
Chart 6 shows the falling price channel with weekly candlesticks over the last six months. Technically, the trend is down as long as the upper trendline and July high hold. A higher high is needed to start an uptrend. The indicator window shows RSI bouncing off the 40-50 support zone for the third time this year. Such a bounce occurs when RSI moves below 50 and then back above. Momentum shifts back to the bulls when RSI moves back above 50, which is the midpoint for the oscillator. The February bounce marked a significant reversal, but the July bounce marked a short oversold bounce (failed rally). The current signal is valid as long as SMH holds above this weeks low.
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Chart 6
NET NEW HIGHS REACH HIGHEST LEVEL SINCE APRIL... In another sign of continued strength, Net New Highs on the Nasdaq and NYSE both reached their highest levels since April. Chart 7 shows Nasdaq Net New Highs ($NYHL) moving above +100 this week and to a level that exceeded the early May high. The cumulative Net New Highs line turned up in early September and broke the May trendline over the last few days. Chart 8 shows the NYSE Net New Highs ($NYHL) edging above its August highs this week. The cumulative Net New Highs line turned up way back in early July and continues to ascend. No weakness here.
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Chart 7
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Chart 8
SUMMATION INDICES CONTINUE TO TREND HIGHER... The McClellan Summation Indices for the Nasdaq and NYSE show no signs of weakness, short-term or medium-term. The Summation Indices are breadth indicators that represent a running total of the McClellan Oscillator. The Summation Index rises as long as the McClellan Oscillator remains positive and falls when the McClellan Oscillator turns negative. Chart 9 shows the Nasdaq McClellan Summation Index ($NASI) and Oscillator. Notice how the McClellan Oscillator has been positive since early September and the McClellan Summation Index has been rising steadily. The Summation Index formed a higher lows at the end of August and a higher high this month. No sign of weakness here. The pink line is a 5-day EMA used to identify upturns and downturns (short-term swings) . The Summation Index has been above this EMA since early September. A move below would signal a downturn that could foreshadow the long awaited Nasdaq pullback. Chart 10 shows the NYSE Summation Index ($NYSI) trading below its August high. A small bearish divergence could be forming, but the indicator remains above its 5-day EMA.
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Chart 9
