SMALL-CAPS LEAD BROAD BOUNCE -- FINANCE SECTOR LAGS OTHER SECTORS -- CITIGROUP DECLINES AFTER REVERSE SPLIT ANNOUNCEMENT -- SEMICONDUCTOR HOLDRS BOUNCE OFF SUPPORT -- INTEL FIRMS AFTER BREAKING JANUARY LOW
SMALL-CAPS LEAD BROAD BOUNCE... Link for todays video. Stocks moved broadly higher on Monday with small-caps leading the way. The major index ETFs were up 1.5% or more on the day. All nine sector SPDRs moved higher with energy and materials leading the charge. Chart 1 shows the Russell 2000 ETF (IWM) hitting support last week and surging with a gap above 80 today. Support around 77 stems from the 50% retracement and the January lows. The bounce over the last four days reinforces this support zone. Failure to hold the gap would be quite negative. A support break would reverse the overall uptrend. Also note that another move to support would raise the specter of a head-and-shoulders pattern extending back to January. The indicator window shows IWM (small-caps) relative to the S&P 500 ETF (large-caps). After a sharp decline in January, the Price Relative has been steadily rising the last eight weeks. It would take a break below the March lows for small-caps to signal relative weakness again.
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Chart 1
FINANCE SECTOR LAGS MARKET... Stocks were broadly higher on Monday, but the Finance SPDR (XLF) was the sector with the smallest gain. While the Consumer Discretionary SPDR (XLY), Industrials SPDR (XLI) and Technology ETF (XLK) were up more than 1%, the Finance SPDR lagged far behind with a relatively small gain. This shows relative weakness. Chart 2 shows XLF opening above 16.4 and moving below this level after the open. This post-open decline forged a filled candlestick where the close is below open. Overall, the ETF remains in corrective mode. The decline over the last 4-5 weeks retraced 50% of the December-February surge and formed a falling channel. Despite the gap-down/gap-up reversal over the last five days (green oval), the ETF has yet to break the channel trendline. Follow through above 16.6 is n eeded to reverse this downtrend The indicator window shows the Price Relative (XLF:SPY) ratio peaking in mid January and edging lower the last two months. A break above last weeks high is needed to show some relative strength.
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Chart 2
CITIGROUP DECLINES AFTER REVERSE SPLIT ANNOUNCEMENT ... Citigroup is still a big bank and an important component in the Finance SPDR. Chart 3 shows Citigroup (C) gapping down in mid January, recovering somewhat and gapping down again in late February. Both gaps held as the stock failed to fill either. This shows weakness. The stock opened above 4.6 today, but moved lower and closed below 4.50. Todays high establishes the first resistance level to watch. As far as the two month downtrend is concerned, a break above the upper trendline of the falling channel and the February high is needed for a reversal. Incidentally, Citigroup announced a 1-10 reverse stock split today. This means shares outstanding will drop from around 30 billion to 3 billion and the price will rise ten fold. The stock also averages some 580,000 million shares volume per day. This number will also drop considerably (tenfold), which will affect the AD Volume Line and NYSE volume.
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Chart 3
SEMICONDUCTOR HOLDRS BOUNCE OFF SUPPORT... Taking a cue from the rebound in Japanese stocks, the Semiconductor HOLDRS (SMH) hit support and bounced over the last few days. Chart 4 shows the Semiconductor HOLDRS hitting support from the December lows and bouncing back above 33 today. The overall trend remains up and support at 32 becomes an important level to watch. It is also possible that a small rising wedge or pennant is taking shape the last three days. This bounce off support looks solid as long as this pennant/wedge rises. A break below Fridays low would show weakness and project a move below last weeks low.
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Chart 4
INTEL FIRMS AFTER BREAKING JANUARY LOW ... At 17.96%, Intel (INTC) is the second biggest component in the Semiconductor HOLDRS. Chart 5 shows the stock taking a big hit last week and breaking below its January low. The stock became oversold after a 10% decline and firmed late last week. Buyers stepped in on Monday, but the stock stopped short of a breakout and the gap held. Also notice that volume on Mondays advance was uninspiring. A little follow through on good volume is needed to break short-term resistance and argue for a bigger bear-trap. After the support break and lower low, a sharp surge back above this break would produce a so-called bear-trap. Short-sellers (bearish) below the support break would then be trapped with losses. It hasnt happened yet, but it is a possibility to watch for in the coming days.
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Chart 5
NETWORKING ISHARES FORMS TWO HARAMI AT SUPPORT... Chart 6 shows the Networking iShares (IGN) forming its second harami at support. The ETF formed a harami last week with a white candlestick and smaller black candlestick. A second harami formed Friday-Monday with the long black candlestick and smaller white candlestick. Harami are similar to inside days, which reflect indecision** that can foreshadow a reversal. The prior move was clearly down and these harami affirm support. A break above short-term resistance would argue for at least an oversold bounce and possibly a continuation of the bigger uptrend. Also note that a break below the five day consolidation would signal a continuation lower.
