DOW AND S&P 500 NEAR SPRING HIGHS -- TECHNOLOGY SECTOR SHOWS RELATIVE STRENGTH ON TWO TIMEFRAMES -- BROKEN RESISTANCE TURNS FIRST SUPPORT FOR XLK -- KBW BANK INDEX SPDR CHALLENGES RESISTANCE -- RETAIL SPDR BREAKS CHANNEL RESISTANCE
DOW AND S&P 500 NEAR SPRING HIGHS... Link for todays video. The Dow Industrials and S&P 500 continue to lead the market higher as they close in on their spring highs. Both are within 2% of their all time highs. The medium-term trends turned bullish with the mid June breakouts. Since these reversals, both moved higher with a series of rising peaks and rising troughs. This basic zigzag advance defines the current uptrend. Each higher peak affirms the uptrend and each higher trough marks key support. Even though stocks may be overbought for the short-term (two weeks), the prior highs sometimes act as magnets that seem to pull the market higher. The early August lows and June trend lines now mark support zones that define the uptrend. A break below these levels would reversal this medium-term uptrend. Chart 1 shows the Dow Industrials with key support marked at 12700. Chart 2 shows the S&P 500 with key support marked at 1350. The Percent Price Oscillators (PPO) are shown in the indicator windows. Momentum is clearly bullish as long as these oscillators remain in positive territory.
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Chart 1
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Chart 2
TECHNOLOGY SECTOR SHOWS RELATIVE STRENGTH ON TWO TIMEFRAMES... The S&P Sector PerfChart shows a rather interesting performance picture for the one and three month timeframes. Namely, the Technology SPDR (XLK) is leading the market on both timeframes. First, note that the PerfCharts below do not include the Energy SPDR (XLE), which is by far the best performing sector over the past month and the second best performer the last three months. I left it out because it skewed the PerfChart with its 8+ percent outperformance this past month. Second, note that all sectors show absolute gains over the past month (23 trading days). Third, note that eight of the nine sectors show absolute gains over the last three months (65 trading days). Only the Finance SPDR (XLF) shows a loss.
Chart 3 shows the Sector Perfchart (sans XLE) in relative performance mode. The values are the absolute gain/loss in the sector SPDR less the absolute gain/loss in the S&P 500. Sectors in positive territory are outperforming, while sectors in negative territory are underperforming. The defensive sectors are leading the market over the last three months. The consumer discretionary and finance sectors are lagging, but the technology sector is leading.
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Chart 3
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Chart 4
Chart 4 shows the Sector PerfChart over the last 23 trading days and the defensive sectors are underperforming. The consumer staples, healthcare and utilities moved from relative strength on the three month timeframe to relative weakness on the one month timeframe. This shows a market shift from defense to offence, or from risk-off to risk-on. The consumer discretionary, materials and finance sectors are also underperforming. Outperformance has come from the technology and industrials sectors. While it is negative to see the consumer discretionary and finance sectors lagging the S&P 500, it is positive to see the technology and industrials sectors leading. Relative strength in techs bodes well for the Nasdaq 100 ETF (QQQ) and Nasdaq.
BROKEN RESISTANCE TURNS FIRST SUPPORT FOR TECH SPDR... Chart 5 shows the Technology SPDR (XLK) breaking above resistance with a big move the last four days. The ETF is up over 3% in four days and up over 6% in ten days. Even though such sharp gains in short periods create overbought conditions, the breakout is bullish until proven otherwise. We could, however, see a throwback or consolidation to digest these gains or alleviate short-term overbought conditions. A throwback could entail a short pullback to the broken resistance zone, which turns into support. Last Thursdays low marks the low end of this support zone at 28.70. A pullback to this zone could provide traders with a second chance to partake in the breakout with a better reward-to-risk ratio. The indicator window shows the price relative breaking above the April trend line as XLK starts outperforming SPY.
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Chart 5
KBW BANK INDEX SPDR CHALLENGES RESISTANCE... The Regional Bank SPDR (KRE) and KBW Bank Index SPDR (KBE) capture the US banking industry by splitting the banks into two general groups. KBE represents the larger banks, while KRE represents regional and smaller banks. Despite this split, there is some overlap between the two. Key Corp and Regions Financial are the two biggest holdings in both ETFs. Several other banks also feature in both ETFs. The biggest difference is with the so-called too-big-too-fail banks. Wells Fargo, Citigroup, JP Morgan and Bank of America are all in the KBW Bank Index SPDR (KBE), but not in the Regional Bank SPDR (KRE).
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Chart 6
Chart 6 shows the KBW Bank Index SPDR challenging its July highs with a surge the last four days. The ETF established support at 21 with lows in late June and mid July. A sort of consolidation has taken shape in July and a break above resistance would signal a continuation of the June advance. The indicator window shows the price relative peaking in March and moving lower the last 4-5 months. KBE is underperforming the market.
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Chart 7
Chart 7 shows the Regional Bank SPDR breaking above falling wedge resistance with a surge the last four days. Trading turned choppy around the resistance break, but the gains are holding for the most part. The June trend line and the July-August lows mark the first support area to watch. The indicator window shows the price relative trading near the low end of its six month range.
RETAIL SPDR BREAKS CHANNEL RESISTANCE... Even though the Consumer Discretionary SPDR (XLY) and Retail SPDR (XRT) show relative weakness since May, both broke above resistance and this breakouts are holding. Chart 8 shows XLY breaking above its June-July highs and this breakout turning into first support. The ETF pulled back early Wednesday, but bounced off broken resistance and closed strong. This breakout is still holding. A move below 44.25 would call the breakout into question and put XLY back into the trading range. Chart 9 shows XRT breaking above the July trend line and holding this breakout so far. Broken resistance around 59.5 turns first support and a move below would question breakout validity.
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Chart 8
