OVERSOLD COMMODITIES BOUNCE OFF CHART SUPPORT -- SO DO STOCKS TIED TO THEM -- TECHNOLOGY STOCKS WEIGH ON MARKET -- S&P 500 IS TESTING 100-DAY AVERAGE WHICH IS AN IMPORTANT SUPPORT LINE
OVERSOLD COMMODITIES START TO BOUNCE... After suffering a sharp downside correction during May, commodities are starting to stabilize. A combination of chart support and a short-term oversold condition also suggest that the worst may be over for commodity assets. Chart 1, for example, shows the DB Commodities Tracking Index (DBC) finding new support at its mid-May intra-day low just above 28. Its 14-day RSI (above chart) is moving back up from oversold territory near 30. A number of individual commodities are also starting to bounce from chart support. Chart 2 shows the United States Oil Fund (USO) bouncing off its 200-day moving average. [Although not shown, copper is bouncing today and is trying to regain its 200-day line]. Precious metals are starting to bounce as well. Chart 3 shows Silver iShares (SLV) trading at the highest level in a week. Its RSI line (top of chart) is rebounding from oversold territory as well. On April 28 I explained how to apply the Parabolic indicator to precious metals and silver in particular. On Tuesday May 3, I showed the SLV triggering a short-term Parabolic sell signal near 44. [A Parabolic sell signal is given when prices hit a rising stop out point marked by the rising dots below the price trend. A buy signal is given when the price hits a falling dot above the falling price]. Chart 3 shows that the SLV has to reach the last falling dot at 36.55 to trigger a new Parabolic buy signal. Chart 4 shows that the Gold Trust SPDR (GLD) has already triggered a Parabolic buy signal. Stocks tied to commodities are also starting to bounce from important support levels.
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Chart 1
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Chart 2
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Chart 3
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Chart 4
COMMODITY STOCKS BOUNCE OFF CHART SUPPORT... The three ETFs tied to commodity stocks are all starting to bounce off important chart support. Chart 5 shows the Energy SPDR (XLE) bouncing off its March low near 72. Chart 6 shows the Global X Silver Miners ETF (SIL) bouncing off its 200-day average. Chart 7 shows the Market Vectors Gold Miners ETF (GDX) trading below its 200-day line but finding support above its January high. In my view, that makes commodity-related stocks a relative bargain at current levels.
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Chart 5
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Chart 6
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Chart 7
SEMIS WEIGH ON NASDAQ ... The stock market remains under pressure. One reason why is the relatively weak performance of the technology sector. Chart 8 shows the Power Shares QQQ Trust (QQQ) trading below its 50-day average (blue line). Its relative strength ratio (below chart) shows relative weakness over the last couple of weeks. Part of the reason for that is the recent downturn in chip stocks. Chart 9 shows Semiconductor Holders (SMH) falling to a new low for the month and threatening its 50-day line as well. Its RS line is dropping also. It's usually not a good sign for the market when technology stocks are leading it lower.
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Chart 8
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Chart 9
S&P 500 IS TESTING 100-DAY LINE... Last Tuesday's message shows the S&P 500 having completed an apparent five-wave advance from last summer's low which suggested that a downside correction was due. I used 100-day Bollinger bands (the eqivalent of 20 weeks) to find some potential downside targets. The key to Chart 10 is that the S&P 500 is now testing its 100-day moving average (dotted line) which contained previous pullbacks during April and May. As I suggested last week, a decisive break of that support line could trigger a further decline to the lower band (green line) near the March low. That would also bring the SPX near its 200-day average (red line) where major support would normally be expected. The market remains in a corrective mode.
