SEMICONDUCTOR HOLDRS BREAK CHANNEL SUPPORT -- INTEL AND AMD LEAD SEMIS LOWER -- NETWORKING STOCKS WEIGHT ON TECHS AGAIN -- QUALCOMM AND JUNIPER LEAD NETWORKERS LOWER -- CORN, SOYBEANS AND WHEAT BOUNCE ALONG WITH STOCK MARKET
SEMICONDUCTOR HOLDRS BREAK CHANNEL SUPPORT... Link for todays video. The Semiconductor HOLDRS (SMH) continues to show relative weakness with a short-term support break over the last two days. Chart 1 shows SMH forming a rising channel as it retraced 62% of the prior decline. The ETF hit resistance at this key retracement last week and broke down on Friday-Monday. SMH opened strong and close weak on Friday to form a long black candlestick. The ETF followed through with further weakness below support on Monday. I featured this chart setup last Wednesday and also noted relative weakness in semis. This breakdown is not a good sign for the technology sector and the Nasdaq. This move signals a continuation of the March decline with the mid March lows marking the first target just above 32. The indicator window shows the Price Relative breaking below its mid March low. Relative to SPY and the broader market, SMH is showing relative weakness as the Price Relative moves lower.
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Chart 1
INTEL AND AMD LEAD SEMIS LOWER... Chart 2 shows Intel (INTC) breaking flag support with a sharp decline the last two days. The stock bounced after the mid March plunge, but could not completely fill the gap zone. Notice how candlesticks with long upper shadows formed in this zone last week. These long upper shadows represent the intraday high. Each foray into the gap zone was met with selling pressure as the stock reversed lower to close well below its intraday high. Fridays support break with a long black candlestick was the last straw. Chart 3 shows Intels competitor Advanced Micro Devices (AMD) breaking wedge support with a sharp decline the last three days. This signals a continuation of the March decline with the next support zone in the 7.2-7.4 area. Did Intel and AMD miss out on the tablet market?
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Chart 2
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Chart 3
NETWORKING STOCKS WEIGHT ON TECHS AGAIN... Networking stocks were also under pressure on Monday. Chart 4 shows the Networking iShares (IGN) surging last Tuesday-Wednesday, but giving it all back on Friday-Monday. Overall, the pattern over the last few weeks looks like a rising flag and the ETF is challenging support. A break below last weeks low would signal a continuation of the mid March decline. The indicator window shows the Price Relative, which is a ratio chart showing IGN performance relative to SPY. Relative performance never recovered after the March plunge and the Price Relative moved below the March lows today. IGN shows relative weakness and this is not a good sign for networking stocks.
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Chart 4
QUALCOMM AND JUNIPER LEAD NETWORKERS LOWER... Research in Motion (RIMM) gets much of the blame for weakness in the Networking iShares. The stock is down over 20% from its March high. Weakness, however, appears to be spreading. Chart 5 shows QUALCOMM (QCOM) with a rising wedge that retraced just over 50% of the prior decline. With a sharp decline today, the stock is challenging the lower trendline. Chart 6 shows Juniper Networks (JNPR) with a rising flag the last two weeks and a break below the flag trendline today.
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Chart 5
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Chart 6
CORN, SOYBEANS AND WHEAT BOUNCE ALONG WITH STOCK MARKET... Agricultural commodities declined with the stock market in March, but also bottomed along with the stock market and surged over the last few weeks. Chart 7 shows the DJ-UBS Corn Subindex ($DJACN) surging over 10% the last three days and hitting a 52-week high. Bloomberg reports that corn futures hit their highest level since July 2008. There is no questioning the underlying uptrend here. The chart goes from the lower left (11) to the upper right (22) for a double-bagger in nine months.
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Chart 7
Chart 8 shows the DJ-UBS Soybeans Subindex ($DJASY) moving higher from July to February. The index declined sharply from mid February to mid March, but the decline looks like a correction within a bigger uptrend. Notice how the decline formed a falling channel and traced out an ABC pattern, which is an Elliott Wave pattern associated with corrections. The index broke the channel trendline with a surge the last few weeks. This signals a continuation higher.
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Chart 8
Chart 9 shows the DJ-UBS Wheat Index ($DJAWH) declining all the way to support in mid March and then reversing higher the last three weeks. At 24, this index is around 50% above its July lows (16). The index broke resistance with a surge in July and then moved into a trading range since August. With a surge the last few weeks, the swing within this trading range is up with resistance at the August-February highs. Click here for a link to symbols for other Dow Jones-UBS Indices.
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Chart 9
AGRICULTURE ETF RESUMES UPTREND... Unsurprisingly, the Agriculture ETF (DBA) remains in a long-term uptrend. Chart 10 shows DBA plunging with the stock market in mid March and then recovering the last few weeks. The ETF found support near the June trendline and broken resistance. We can now set key support at this reaction low. As you can see from these charts, many agriculture-related commodities are in big uptrends. Moreover, many have appreciated significantly since summer. These price increases will likely be passed through to the consumer in some way, shape or form. While it may not show up in core-CPI, this inflation will show up in non-core CPI and on food bills. DBA is an ETF based on 11 agricultural commodities. Corn, Soybeans and Wheat each weigh around 12.5%. Combined, these three account for around 37.5% of the ETF. Cocoa, Coffee, Live Cattle and Sugar each weigh over 10%. You can read more on this ETF at the invescopowershares.com
