FINANCE SECTOR LEADS AFTERNOON REBOUND -- DIA AND SPY HOLD SUPPORT WITH LATE SURGE -- OIL SURGES OFF SUPPORT AS GASOLINE HITS A NEW HIGH -- TRACKING EUROPEAN INDICES THROUGHOUT THE DAY -- SPANISH AND ITALIAN INDICES BREAK SUPPORT LEVELS
FINANCE SECTOR LEADS AFTERNOON REBOUND... Link for todays video. Stocks were down sharply in early trading on Monday, but the finance sector showed relative strength early on and led the market during the afternoon rebound. In contrast to European equities, US banks seem to like the Irish bailout. Chart 1 shows the Finance SPDR (XLF) firming near a support zone around 14.2-14.4 with a white candlestick today. Support in this area stems from the September-October lows. Also notice that the decline retraced 50-62% of the August-November advance. At this point, XLF is firming within a downtrend. The decline slowed over the last few days, but XLF remains short of a reversal. A bullish engulfing pattern formed today as the ETF opened weak and closed strong. Follow through above last Wednesdays high would confirm this short-term candlestick reversal and break the four week channel. Chart 2 shows the Regional Bank SPDR (KRE) with a piercing pattern on Monday. These are similar to bullish engulfing patterns. The open is below the prior low and the close is above the mid point of the prior candlestick. An intraday reversal occurred and follow through in the next day or two would confirm the piercing pattern.
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Chart 1
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Chart 2
DIA AND SPY HOLD SUPPORT WITH LATE SURGE... The Dow Industrials SPDR (DIA) and the S&P 500 ETF (SPY) were on the verge of short-term support breaks, but rallied in the afternoon to affirm these support levels. Chart 1 shows DIA gapping up on November 4th and then filling this gap with a decline to 110 in mid November. This gap is now considered an exhaustion gap, which is short-term bearish. DIA bounced off 110 in mid November and then embarked on a trading range the last two weeks. Support is around 110 and resistance around 112. These levels correspond with 11000 and 11200 on the Dow Industrials. At this point the two week consolidation holds the key to the next signal. A break below support at 110 would target a move towards the next support zone around 106, which stems from broken resistance. A break above 112 would be bullish and put DIA on track with IWM and QQQQ. The Commodity Channel Index (CCI) is shown in the indicator window. Notice how this momentum indicator moved into negative territory and remained in negative territory the last two weeks. A break back into positive territory is needed to reverse downward momentum. Chart 4 shows the S&P 500 ETF (SPY) with similar characteristics.
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Chart 3
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Chart 4
OIL SURGES OFF SUPPORT AS GASOLINE HITS A NEW HIGH... Despite weakness in European stocks and a mixed day for US, oil moved sharply higher on Monday as investors focused on the cold weather. Europe was hit with a cold snap last week and temperatures on the East coast are running below average, which means more demand for heating and energy related products. Chart 5 shows West Texas Intermediate ($WTIC) breaking diamond resistance at the beginning of October and this resistance break turning into support around 80. Oil finished strong last week and above $85 today. The strong bounce over the last few days reinforces support at 80. Note that this is an end-of-day (EOD) chart that will be updated after the close. Chart 6 shows the USO Oil Fund (USO) finding support at broken resistance over the last two months. The surge above 36.5 reinforces support at 34.5. Chart 7 shows the US Gasoline Fund (UGA) even stronger than oil. UGA exceeded its mid November high today.
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Chart 5
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Chart 6
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Chart 7
TRACKING EUROPEAN INDICES THROUGHOUT THE DAY... The debt crisis in Europe shows no signs of abating as stocks throughout Europe moved sharply lower on Monday. Europe is a concern for US investors because the crisis in Europe derailed the US stock market in April-May. US stocks are holding up pretty good so far, but we should keep an eye on Europe nonetheless. Before looking at some key charts, lets review the symbols available. Stockcharts.com offers two indices to track stocks for a number of countries. First, there are the traditional exchange based indices, such as the German DAX Index ($DAX). Second, there are the Dow Jones indices, such as the DJ Germany Index ($DEDOW). These two versions track each other fairly close with one main difference. The exchange based country indices are updated with the build at the end of the trading day (after the close). At the top left of the chart, the index name is followed by EOD for end of day. The Dow Jones indices are updated throughout the trading day. With these indices, chartists can follow European stocks during the normal trading day. Below is a list of some index pairings. You can see all of these by searching for dow jones in the symbol catalog.
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Chart 8
France and Germany are the two big core countries in the EU. Chart 9 shows the DJ France Index ($FRDOW) falling over 2% and nearing support from the early October lows. Chart 10 shows the DJ Germany Index ($DEDOW) also falling over 2% today. German stocks were, and still are, the strongest in the EU. However, weakness even spread to this core country today. Broken resistance from the summer highs turns into the next major support zone.
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Chart 9
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Chart 10
SPANISH AND ITALIAN INDICES BREAK SUPPORT LEVELS... In addition to Greece and Ireland, Spain and Portugal are part of peripheral Europe. Some might even include Italy in that group. Italian stocks certainly were not spared today. In fact, chart 11 shows the DJ Italy Index ($ITDOW) breaking support with a sharp decline the last three weeks. This break signals a continuation of the bigger downtrend and targets a move below the May-June lows. Chart 12 shows the DJ Spain Index ($ESDOW) breaking support in early November and falling over 15% in the last six weeks. Investors have little confidence in Spanish equities right now. Chart 13 shows the DJ Portugal Index ($PTDOW) breaking support and falling around 10% this month.
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Chart 11
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Chart 12
