OIL SERVICE HOLDRS AND TRANSPORT ISHARES FORM PENNANTS -- SEMIS AND REGIONAL BANKS CONTINUE SHOWING RELATIVE STRENGTH -- RETAILERS IN THE SPOTLIGHT ON TUESDAY -- NETWORKING ISHARES BREAKS DOUBLE BOTTOM RESISTANCE
OIL SERVICE HOLDRS AND TRANSPORT ISHARES FORM PENNANTS... Link for todays video. With flat trading the last few weeks, a number of stocks and ETFs formed pennant or triangle consolidations. John Murphy noted this pattern in the S&P 500 on Friday. Pennants and triangles are usually continuation patterns that mark a rest after a move. Pennants typically form over a 1-4 week period. Anything longer would likely be considered a triangle. The name is not important here. Both patterns look alike and both are typically continuation patterns. Pennant/triangle breakouts would signal a continuation of the prior advance. Chart 1 shows the Oil Service HOLDRS (OIH) with a pennant-triangle forming in the middle of the July-September decline. The support break signaled a continuation of the August plunge. After a big rally in October, the ETF formed another pennant-triangle consolidation. A break above resistance would signal a continuation higher, while a break below support would argue for a reversal. Chart 2 shows the Transport iShares (IYT) edging above the upper trendline of its pennant-triangle. Last weeks low now marks key support.
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Chart 1
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Chart 2
SEMIS AND REGIONAL BANKS CONTINUE SHOWING RELATIVE STRENGTH ... Chart 3 shows the Regional Bank SPDR (KRE) surging through resistance and then forming a pennant-triangle. Last weeks range marks support and resistance. Watch these levels for the next breakout. The indicator window shows the Price Relative breaking out in mid October and hitting new highs last week. KRE continues to shows relative strength. Leadership from the beleaguered regional banking group is a positive for the market overall. Note, however, that the Finance SPDR (XLF) and money-center banks are not showing relative strength.
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Chart 3
Chart 4 shows the Semiconductor HOLDRS (SMH) surging over 20% in October and then consolidating with a pennant. SMH is currently challenging the upper trendline. The ETF established support in the 30.50 area with two lows in November. A break below these lows would be bearish. The indicator window shows the Price Relative zooming to new highs the last two months as SMH shows relative strength. Upside leadership from the chip industry is a positive for the technology sector and the Nasdaq.
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Chart 4
RETAILER SPDR HOLDS OCTOBER BREAKOUT... Retail stocks will be in the spot light this week because October retail sales will be reported on Tuesday before the market open. While estimates may vary, many economists note that retail sales drive some two thirds of GDP. This makes retail sales an important indicator for the economy. By extension, chartists can analyze the Retail SPDR (XRT) and the Retail HOLDRS (RTH) to gauge the performance of this key group. Relative strength and bullish charts would be positive for retail sales, the economy and the stock market. In contrast, relative weakness and bearish charts would be negative. Chart 5 shows the Retail SPDR breaking resistance in October and holding this breakout the last few weeks. Notice that the ETF consolidated above the breakout with a pennant-triangle forming the last three weeks. As continuation patterns, a move above 54 would signal a continuation of the prior advance and target a move to new highs. Support is set at 51. A move below this level would negate the pennant-triangle and break the lows of the last three weeks. The indicator window shows the Price Relative (XRT:SPY ratio). XRT has been outperforming since mid August as the Price Relative rose. The indicator flattened the last few weeks, but has yet to break support from the mid October low. A move below this level would indicate that XRT was starting to underperform. This would be negative for the retail group and the market overall.
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Chart 5
Chart 6 shows the Retail HOLDRS (RTH) hitting a new 52-week high last week. John Murphy featured its biggest component, Wal-Mart (WMT), in the Market Message on November 8th. WMT hit a new 52-week high last week to power the Retail HOLDRS. RTH broke flag resistance with this surge and this breakout is holding. There was a throwback to the 110 area that marks first support now. The November 1st low marks key support around 106.50.
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Chart 6
NETWORKING ISHARES BREAKS DOUBLE BOTTOM RESISTANCE... The Networking iShares (IGN) is starting to show upside leadership with a break above Double Bottom resistance. As its name implies, a Double Bottom pattern forms with two lows that are relatively equal. The pattern is confirmed when prices exceed the intermittent high. Chart 7 shows IGN breaking above resistance at 29 in late October, getting cold feet and then moving back above resistance. The November lows now mark a support zone around 28. A move below these lows would call for a reassessment. The indicator window shows the Price Relative turning up and breaking the down trendline. This indicates that IGN is starting to show relative strength. Chart 8 shows Cisco (CSCO) leading the group with a breakout the second week of October. This inverse Head-and-Shoulders pattern was featured in the October 5th Market Message.
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Chart 7
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Chart 8
GOLD IGNORES THE DOLLAR WITH A SHARP ADVANCE... Even though the Dollar bottomed on October 27th and moved sharply higher the last few weeks, Spot Gold ($GOLD) is trading higher over this same timeframe. The indicator window in chart 9 shows gold and the US Dollar Index ($USD). Notice that both moved higher since October 27th (blue arrow). This is impressive to see gold move higher in the face of a stronger Dollar. On the price chart, gold retraced 61.80% of the prior decline with an advance back above 1775. While this retracement marks a possible reversal area, the trend since late September is clearly up. A rising channel has taken shape with the lower trendline and early November low marking support at 1675. Also note that broken resistance around 1700 turns into a support. Take together, the 1675-1700 area holds the key to the current uptrend. Chart 10 shows the Gold SPDR (GLD) for reference. Chart 11 shows the Silver Trust (SLV) with key support marked at 31.50.
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Chart 9
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Chart 10
