DEFENSIVE SECTORS REMAIN LAGGARDS -- HEALTHCARE SPDR BREAKS 2010 HIGHS -- PFIZER AND BAXTER LEAD AS MERCK AND J&J LAG -- SILVER:GOLD AND COPPER:GOLD RATIOS RISE ALONG WITH STOCKS -- TRACKING COMMODITIES WITH DOW JONES AND IPATH
DEFENSIVE SECTORS REMAIN THE LAGGARDS... The Healthcare SPDR (XLV) has been lagging the broader market for some time now. While the S&P 500 is up some 30% since early July, XLV is up around 18%. Chartist can compare performance by using the S&P Sector PerfChart. Chart 1 shows this PerfChart extending back to July 1st. The S&P 500 tab is white and the S&P 500 box is checked, which means we are seeing the absolute performance for these nine sectors and the S&P 500. Five of the nine are outperforming. Four of the nine are underperforming. In particular, the defensive sectors, healthcare, utilities and consumer staples, are underperforming. This means they are up less than the S&P 500 and showing relative weakness. Finance is also underperforming over this timeframe.
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Chart 1
HEALTHCARE SPDR BREAKS ABOVE 2010 HIGHS... Even though the Healthcare SPDR (XLV) is lagging, the ETF is not actual down for the period and is showing signs of live with a breakout this week. Chart 2 shows XLV exceeding its 2010 highs with a move above 32.5 this week. Prior to this breakout, XLV was the only sector SPDR that had yet to exceed its 2010 highs this year. Note that the Finance SPDR (XLF) exceeded its April 2010 high with a surge above 17 last week. This new high affirms the uptrend that has been in place since the September breakout around 29.5. The 2007 highs mark the next resistance zone around 35.
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Chart 2
PFIZER AND BAXTER LEAD AS MERCK AND J&J LAG... Performance within the sector is a bit mixed. Managed health and medical devices are strong, but some of the bigger pharmaceutical companies are lagging. Chart 3 shows Pfizer (PFE), which is the second biggest component (12%), surging to a new 52-week high and leading the sector higher. The stock is up some 35% since early July. Chart 4 shows Baxter (BAX) breaking above consolidation resistance with a February surge.
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Chart 3
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Chart 4
Chart 5 shows Merck (MRK) gapping down in mid January on news that it stopped a study for a new clot drug. Prior to this setback, MRK was challenging resistance from the 2010 highs. The stock was also hit after an earnings report in early February. The stock is clearly under pressure, but support may be at hand around 33. Support in this area stems from the summer lows and a 62% retracement of the May-January advance. As far as the actual trend is concerned, the stock needs to break above resistance from the early February high to fill the gap and get back on the bullish track. Chart 6 shows Johnson & Johnson (JNJ) taking an earnings related hit towards the end of January. JNJ accounts for 12.91% of the Healthcare SPDR. Broken resistance from the July-August highs turns into a potential support zone that is confirmed by the 50-62% retracement area. JNJ managed to firm this month and a break above the February high would be positive.
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Chart 5
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Chart 6
SILVER:GOLD AND COPPER:GOLD RATIOS RISE ALONG WITH STOCKS... Ratio charts can be used to determine the relative performance of two securities. Chartists can use the Silver:Gold ratio and the Copper:Gold ratio to measure the performance of industrial metals relative to precious metals. Silver and copper outperform when the numerator rises more than the denominator (gold). Relative strength in these industrial metals is seen as positive for the economy because rising prices imply rising demand. Demand rises as the economy expands. Chart 7 shows the $COPPER:$GOLD ratio peaking at the end of March and bottoming in early June. Notice that the S&P 500 Equal Weight Index ($SPXEW) peaked around four weeks after the ratio peaked and bottomed around four weeks after the ratio bottomed. Chart 8 shows the $SILVER:$GOLD ratio with similar characteristics.
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Chart 7
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Chart 8
Focusing on 2011, the Copper:Gold Ratio stalled over the last few weeks, but the Silver:Gold ratio surged to new highs. The Copper:Gold ratio is stalling because of renewed strength in gold this month. The Silver:Gold ratio is surging because silver is up around 14% this month and outperforming gold. At this point, there is not enough weakness in the Copper:Gold ratio to concern the stock market and the new high in the Silver:Gold ratio is bullish for stocks.
TRACKING COMMODITIES WITH DOW JONES AND IPATH... Stockcharts.com users can track commodities by using specific indices from Dow Jones and with various ETFs. These might not match the actual futures, but we can get a good idea of underlying commodity trends with these securities. Among other things, Dow Jones has indices that track cocoa, petroleum, soybeans and live hogs. iPath has a number of ETFs designed to track these underlying Dow Jones-UBS indices. The table below shows 19 commodity-related indices from Dow Jones-UBS and 18 ETFs from iPath. Notice that the DJ-UBS Agriculture Total Return Sub-Index ($DJAAGT) corresponds with an iPath ETF (JJA). According to the ipathetn.com, this index/ETF consists of Soybeans (25.05%) Corn (23.77%), Wheat (15.26%), Sugar (11.62%), Soybean Oil (9.21%), Coffee (7.69%) and Cotton (7.42%). Many of these individual components can be followed using the Dow Jones-UBS Indices. Two comma-separated symbol lists are provided below the table. Sharpcharts users can copy these symbols and add them to a favorites list.
Chart 9
COPY THESE SYMBOLS TO ADD TO A FAVORITES LIST... $DJAAGT, $DJACC, $DJAKC, $DJAIGT, $DJACN, $DJACT, $DJAENT, $DJAGRT, $DJAINT, $DJALH, $DJALC, $DJALIT, $DJAPET, $DJAPRT, $DJASOT, $DJABO, $DJASY, $DJASB, $DJAWH
JJA, JJU, NIB, JO, JJC, BAL, JJE, JJG, JJM, LD, COW, GAZ, JJN, PGM, JJP, JJS, SGG, JJT
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Chart 10
