TECHNOLOGY AND CONSUMER DISCRETIONARY SPDRS CHALLENGE SUMMER HIGHS -- RETAIL ETFS BREAK RESISTANCE IN SHOW OF STRENGTH -- AMAZON AND HOME DEPOT LEAD RETAILERS -- SEMIS LEAD TECHNOLOGY SECTOR -- FIRSTTRUST INTERNET ETF BREAKS TRIANGLE RESISTANCE
TECHNOLOGY AND CONSUMER DISCRETIONARY SPDRS CHALLENGE SUMMER HIGHS ... Link for todays video. Stocks were broadly higher on Wednesday with the Consumer Discretionary SPDR (XLY) and the Technology SPDR (XLK) leading the way. Chart 1 shows XLK challenging resistance in the 26.5 area. Resistance in this area turned the ETF back at least four times in the last twelve months. Overall, it looks as if a large inverse head-and-shoulders pattern is taking shape since May. The June low marks the left shoulder, the August-October lows mark the head, the November low marks the right shoulder and the 2011 highs mark neckline resistance. A break above the 2011 highs would confirm the pattern and signal a continuation of the prior advance, which was from June 2010 to February 2011. An inverse head-and-shoulders pattern that forms after an advance is a bullish continuation pattern. It is really just one big consolidation, which is basically a rest within the uptrend. A break above neckline resistance ends the consolidation and signals a resumption of the uptrend.
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Chart 1
Chart 2 shows XLY moving within spitting distance of its July high. The ETF surged in October, consolidated with a small inverse head-and-shoulders pattern and then broke resistance here in January. The current move started just before Christmas and the ETF is up around 8% the last four weeks. Broken resistance (neckline) turns into the first support zone in the 39.50 area. The December low marks key support.
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Chart 2
RETAIL ETFS BREAK RESISTANCE IN SHOW OF STRENGTH... Retail is perhaps the most important industry group in the consumer discretionary sector. In addition, retail spending is a key driver for the economy. Retailers are the first to benefit when consumer spending is strong and the first to suffer when weak. There are two retail ETFs: the Retail SPDR (XRT) and the Market Vectors Retail ETF (RTH). RTH has 25 stocks with the top five accounting for around 36% of the ETF. XRT, on the other hand, is a very broad-based retail ETF with over 90 stocks. The top ten components accounts for around 13% of the ETF as the weightings are more evenly spread. This makes it an excellent barometer for the retail industry overall. Chart 3 shows XRT breaking above its November-December highs today. The December-January lows mark a support zone in the 50.5-51 area. Failure to hold this breakout and a move below the December low would be most bearish. But it aint happened yet. Chart 4 shows RTH breaking above its 2011 highs with a surge above 114 the last few days. This ETF just hit a new 52-week high.
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Chart 3
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Chart 4
AMAZON AND HOME DEPOT LEAD RETAILERS ... Chart 5 shows Amazon (AMZN) breaking resistance with a surge over the last three days. The stock trended lower from mid October until the end of December. A small base formed from mid December until mid January. In fact, the pattern resembles a small inverse head-and-shoulders. Regardless of the pattern, the stock broke the trendline and the early January high with a big move above 185. Chart 6 shows Home Depot (HD) in a clear uptrend since August. Strength in homebuilders no doubt reinforced the rally in HD. This rally, however, is getting a bit long on tooth as the stock is up over 20% since late November. Also notice that prices are nearing the upper trendline of a rising channel. I drew the lower trendline first and then made the upper trendline parallel.
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Chart 5
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Chart 6
SEMIS LEAD TECHNOLOGY SECTOR ... The Market Vectors Semiconductor ETF (SMH) is leading the technology sector higher with a break above its October-November highs. Retailers are to the consumer discretionary sector what chips are to the technology sector (very important). Chart 7 shows SMH breaking triangle resistance to start the year and then surging above 32.50 with a big move today. The 2011 highs mark the next resistance zone in the 34.5-35 area. Broken resistance in the 31.50 area turns into the first support zone to watch on a throwback. The indicator window shows the SMH:SPY ratio, which shows relative performance. SMH underperformed the market from mid November to mid December and then started outperforming the last four weeks. Chart 8 shows Altera (ALTR) surging above resistance with above average volume. Chart 9 shows Xilinx (XLNX) extending its triangle breakout with a surge above 35 on good volume.
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Chart 7
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Chart 8
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Chart 9
FIRSTTRUST INTERNET ETF BREAKS TRIANGLE RESISTANCE... The FirstTrust Internet ETF (FDN) did not partake in the 2012 rally until today. Chart 10 shows the ETF breaking above triangle resistance with a gap on the first trading day of the year. While the broader market moved higher the next two weeks, FDN simply consolidated near the breakout. This consolidation just ended as the stock broke above its January 3rd high with a surge above 33 today. In addition to Amazon, PriceLine (PCLN) is pushing this ETF higher with a big gain the last two days. Chart 11 shows PCLN breaking consolidation support with a gap and two day surge. Volume could be stronger, but there is no questioning this price breakout.
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Chart 10
