LARGE-CAP TECH STOCKS LEAD MARKET HIGHER -- QQQ ESTABLISHES KEY SUPPORT WITH 3-DAY SURGE -- APPLE, MICROSOFT AND ORACLE SURGE -- RETAILERS SHRUG OFF DISAPPOINTING RETAIL SALES REPORT -- OIL ETF HITS RESISTANCE AS BASE METALS ETF TESTS SUPPORT
LARGE-CAP TECH STOCKS LEAD MARKET HIGHER... Link for todays video. The bulls refuse to buckle as stocks moved higher for the third day running. Overall, large-cap tech stocks have been leading the market since the August 19th low. Chips were particularly strong on Monday with the Semiconductor HOLDRS (SMH) surging over 2%. Chart 1 shows SMH breaking above its late August high with a big surge the last three days. The next resistance zone resides around 32, which is marked by broken support and the 61.80% retracement.
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Chart 1
As far as large-cap tech performance is concerned, chart 2 shows the Nasdaq 100 ETF (QQQ) with four other major index ETFs. QQQ is up over 11% since this low and clearly leading the other ETFs. The S&P MidCap 400 SPDR (MDY) is next in line with a 9+ percent gain and the Dow Industrials SPDR (DIA) is bringing up the rear with a meager 5+ percent gain. It is positive to see mid-caps leading. What does QQQ have that the other dont? How about eight big tech stocks that account for over 50% of the ETF. According to invescopowershares.com, Apple, Microsoft and Oracle alone account for **around 30% of QQQ. Strength in a handful of big tech stocks is enough to power QQQ.
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Chart 2
QQQ ESTABLISHES KEY SUPPORT WITH 3-DAY SURGE... I consider the long-term trend for QQQ to be down after the major support break in early August. However, this does not preclude counter trend rallies. QQQ is currently in one such rally. Chart 3 shows the ETF bouncing twice around 50 and then moving above 55 twice in the last three weeks. Broken support in the 56.5-57 area marks the next resistance zone. As far as support is concerned, this weeks opening low at 52.50 marks an important support level to watch. A move below this level would forge a lower low to reverse the four week advance. This would signal a continuation of the bigger downtrend. I am also watching the Commodity Channel Index (CCI) with support at the zero line. Sometimes there is a nice trendline to work with, such as the May-June and July-August declines. Sometimes not. This time around, CCI established support at the zero line with two bounces in September. A move into negative territory would turn this momentum indicator bearish.
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Chart 3
APPLE, MICROSOFT AND ORACLE SURGE... The big three hold the key to QQQ and chartist can watch key support levels for clues. Chart 4 shows Apple (AAPL) moving higher the last three days. Mondays low marks key support at 370. CCI turned positive in late August and remains positive. A move into negative territory would be bearish for this momentum indicator. Chart 5 shows Microsoft (MSFT) holding above its June low and surging above 26. Not many indices or stocks held above their June lows in August. This shows some relative strength. Uptrend support is set at 25.25, which is based on Mondays low. Chart 6 shows Oracle (ORCL) forming a higher low in early September and surging above 28 today. The September lows mark key support. The TRIX (10,6) oscillator moved above its signal line in late August and remains in an uptrend. This upswing is in good shape as long as TRIX holds above its signal line.
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Chart 4
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Chart 5
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Chart 6
RETAILERS SHRUG OFF DISAPPOINTING RETAIL SALES REPORT... The Commerce Department reported that August retail sales were flat in August, which was worse-than-expected. Best Buy (BBY) reported a sharp drop in quarterly earnings on Tuesday and noted that sales were disappointing. Despite this negative news, chart 7 shows the Retail SPDR (XRT) rising last three days and leading the market over the last few weeks. Retail is a very important part of the domestic economy. As with QQQ and the rest of the market, I am still treating the current advance as a counter-trend rally. The bigger trend is down after the big support break at 49. This rally could extend into the 50-51 area and retrace 50-61.80% of the prior decline. There are two approaches to identifying the endpoint for this counter-trend rally. First, aggressive traders can look for a bearish candlestick reversal or bearish momentum signal in the 50-51 area. For example, MACD moving below its signal line would be a bearish trigger. Second, trend followers could identify important support and turn bearish on a break below this level. As with the charts above, Mondays low marks key support. A move below 46.50 would break the August trendline and forge a lower low to reverse the uptrend. Chart 8 shows the Retail HOLDRS (RTH) with similar characteristics. Wal-mart (WMT) and Home Depot (HD) are leading RTH higher.
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Chart 7
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Chart 8
OIL ETF HITS RESISTANCE AS BASE METALS ETF TESTS SUPPORT... There are definitely some strange cross-currents in play over the last few weeks. Even though European stocks were decimated in September and the S&P 500 is lower, oil is trading near its highs for the month. Also note that oil is higher in the face of a strong Dollar this month. Chart 9 shows the US Oil Fund (USO) with a rising wedge advance that is meeting resistance at 35. Resistance stems from broken support and the May trendline. I am sure there is also a key retracement in the area. This smaller uptrend remains in play as long as support at 33 holds. A move below this level would signal that the bigger downtrend is re-asserting itself. The indicator window shows CCI bouncing off the zero line twice in September. A move into negative territory would be the first bearish signal for momentum.
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Chart 9
Not all commodities are holding up this month. Chart 10 shows the Base Metals ETF (DBB) breaking below flag support with a sharp decline in September. DBB is testing the August low and showing relative weakness. Falling prices for industrial metals suggest weak demand from a weakening economy. This is negative for the economic outlook and the stock market. Something may need to give here. Either oil follows industrial metals lower or industrial metals hold support and rebounds along with oil. Watch resistance at 22.50 for clues on a bullish revival (failed flag break).
