SMALL-CAPS LEAD STOCKS LOWER AFTER FED MINUTES -- TECHNOLOGY SECTOR WEIGHS ON MARKET -- IBM, INTEL AND MICROSOFT LEAD LOWER -- INDUSTRIALS SPDR TESTS WEDGE TRENDLINE -- AIRLINE INDEX GETS A LIFT -- DELTA, JETBLUE AND SOUTHWEST LEAD AIRLINES
SMALL-CAPS LEAD STOCKS LOWER AFTER FED MINUTES... Link for todays video. Stocks treaded water most of the day and then got hit in the afternoon when the Fed minutes were released. Chart 1 shows the Russell 2000 ETF (IWM) falling below 79 and entering last weeks gap zone. A positive response to last weeks EU summit triggered last weeks gap, but this gap is in danger of filling. Note that the Dow Industrials SPDR (DIA) already filled its gap, while the S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ) are trading in their gap zones. Follow through has not been impressive. It seems that US stocks are turning their focus towards earnings and the economy at home. On the IWM chart, the ETF has support in the 77.35-78 area from the gap and June trendline. A break below this support zone would suggest that the April-May decline is continuing.
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Chart 1
Chart 2 shows the S&P 500 ETF (SPY) breaking down in May and bouncing with a rising wedge in June. The ETF gapped down after the jobs report on Friday and this gap remains. SPY is currently testing the rising wedge trendline as it moves into the gap zone from last week. I am watching the Percent Price Oscillator (PPO) quite closely at this stage. A move into negative territory would turn momentum bearish and this could signal a continuation of the May decline.
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Chart 2
TECHNOLOGY SECTOR WEIGHS ON MARKET... The Technology SPDR (XLK) is starting to underperform the broad market again as a bearish wedge takes shape on the chart. Chart 3 shows XLK falling sharply in April-May and then retracing 61.80% of this decline with a rising wedge. Both the retracement and the pattern are typical for counter-trend rallies. The ETF stalled with a spinning top five days ago and then moved lower the last four days. A break below the wedge trendline would signal a continuation of the April-May decline and project a break below the 200-day moving average. The indicator window shows the XLK:SPY ratio falling in April, trading flag in May-June and resuming its fall in July. Weakness in this price relative indicates that techs are starting to underperform again. Relative weakness in this key sector is negative for the market overall.
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Chart 3
IBM, INTEL AND MICROSOFT LEAD LOWER... Tech stocks do not get much bigger than IBM (IBM), Microsoft (MSFT) and Intel (INTC). These three titans have fallen rather sharply the last five days and the Price Relatives broke down this month. Chart 4 shows IBM, aka big blue, breaking triangle support with a sharp decline below 190. This break follows a support break in May and the bigger trend is clearly down for this key tech stock. The indicator window shows the Price Relative moving sharply lower the last two months.
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Chart 4
Chart 5 shows Intel forming a lower high in mid June and then falling sharply the last three weeks. The stock has given up most of its June surge and the price relative is at its lowest level of the year (2012).
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Chart 5
Chart 6 shows Microsoft breaking support in May, forming a lower high in mid June and then breaking down the last four days. The price relative broke below its April-May lows and Microsoft is showing some serious relative weakness. What do these three stocks have in common? It is just a hunch, but they all seem to have little exposure to the tablet market.
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Chart 6
INDUSTRIALS SPDR TESTS WEDGE TRENDLINE... Technology is not the only sector under fire recently. A warning from Cummins Engine weighed on the industrials sector on Tuesday and XLI looks poised to continue its May breakdown. Chart 7 shows XLI with a head-and-shoulders top forming from February to April. After the neckline support break, the stock became quite oversold and bounced back to the break area. A dark cloud formed the first day of July and the stock moved sharply lower the last four days. First, the head-and-shoulders is bearish and remains the dominant chart feature. Second, the rising wedge looks like a mere correction within the bigger downtrend. Third, XLI shows serious relative weakness as the Price Relative hit a new low for 2012.
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Chart 7
AIRLINE INDEX GETS A LIFT ... Despite weakness in the industrials sector, the airline group is showing strength on an absolute and relative basis. Airlines, like railroads and freight companies, are part of the industrials sector. Chart 8 shows the DJ US Airline Index ($DJUSAL) moving above its mid June high with a 2+ percent advance on Tuesday. The trend since mid March is clearly up with a series of rising highs and lows. In fact, one could even argue that $DJUSAL is breaking out of an ascending triangle today. Airlines got a boost today from a positive load-factor report from Continental United (UAL), an upgrade on Southwest (LUV) and merger talk from American (AAMRQ), which declared bankruptcy less than a year ago. Airlines are also benefitting from lower fuel costs. The indicator window shows Spot Light Crude ($WTIC) peaking in late February and falling as the airline index rose in April-May-June. Chartist can find a listing of all airline stocks in the sector summary feature
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Chart 8
DELTA, JETBLUE AND SOUTHWEST LEAD AIRLINES... Chart 9 shows Delta Airlines (DAL) in an uptrend since August with the June lows marking key support. Chart 10 shows Southwest Airlines (LUV) breaking above its mid June highs with a surge above 9.50 on Tuesday. Chart 11 shows volatile Jetblue (JBLU) forming a higher low in May, breaking resistance in late May and continuing higher the last four weeks. Even though these stocks and the group are strong, they could succumb to selling pressure if the broader market moves lower.
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Chart 9
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Chart 10
