S&P 500 EQUAL WEIGHT ETF BREAKS MARCH HIGHS -- HOME CONSTRUCTION ETFS HIT FRESH NEW HIGHS -- RETAIL SPDR HOLDS BREAKOUT -- AIRLINE INDEX AND ETF SURGE OFF SUPPORT
S&P 500 EQUAL WEIGHT ETF BREAKS MARCH HIGHS... Link for todays video. Even though stocks may be short-term overbought after sharp advances this month, the bulls maintain their overall edge as many key ETF trade at or new 52-week highs. Chart 1 shows the S&P 500 Equal Weight ETF (RSP) surging last week and continuing higher this week. With this move, the ETF surpassed its prior high and recorded a new 52-week high. RSP was lagging the S&P 500 ETF in early August, but is starting to play catchup and lead the market again. The new high is certainly a start. The indicator window shows the price relative (RSP:SPY ratio) breaking above its mid August high as RSP outperforms the last six weeks. The bulls are in good shape as long as RSP holds support at 50 and the price relative holds the mid August low.
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Chart 1
Small-caps are also perking up as the Russell 2000 ETF (IWM) challenges its spring highs. Chart 2 shows IWM establishing support at 80 in late August and surging to 84 this month. Even though this level may mark some resistance, the trend is clearly up as long as support at 80 holds. The June trend line and mid August lows mark support here. The indicator window shows the IWM:SPY ratio turning up in early August and challenging the February trend line.
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Chart 2
HOME CONSTRUCTION ETFS HIT FRESH NEW HIGHS... The Home Construction iShares (ITB) and the Homebuilders SPDR (XHB) remain two of the strongest industry group ETFs. Even though these two share a similar name and components, the weightings show a difference. ITB is more focused on the actual builders with nine of the top ten components coming from this group. Home Depot (HD) is the only none-builder. XHB contains several home builders, but there are several stocks that are merely associated with the home building industry. Notice that the top ten includes Lumber Liquidaters (LL), Select Comfort (SCSS), Whirlpool (WHR) and Tempur Pedic (TPX). Chart 3 shows ITB moving above 19 and forging another 52-week high today. A rising channel formed this year and the ETF exceeded this channel today. RSI also moved above 70 for the first time since January. ITB may be overbought, but it is clearly in an uptrend and leading the market. The price relative (ITB:SPY ratio) hit a new 52-week high today. Relative strength and a fresh new high in ITB are positive for the market overall.
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Chart 3
Chart 4 shows XHB with similar strength. The ETF broke resistance from an inverse head-and-shoulders pattern in mid August and recorded a 52-week high today. Broken resistance turns into first support in the 22 area. The price relative hit a new high as XHB continues to show relative strength. RSI moved above 70 for at least the fifth time this year. Even though this may foreshadow a pullback or consolidation, overbought is a sign of strength, not weakness.
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Chart 4
RETAIL SPDR HOLDS BREAKOUT... The Retail SPDR (XRT) is also showing strength with a break above its spring highs and a fresh 52-week high today. Retailers will be in the spotlight on Friday when the Commerce Department releases retail sales figures for August. Note that retailers and homebuilers are largely domestic business and relative strength in these two groups bodes well for the US economy. Chart 5 shows XRT basing from mid May to early August with a rounding bottom of sorts. XRT then broke out in late August and extended its gains in early September. The broken resistance zone and December trend line mark key support at 59 for now. The indicator window shows the price relative breaking above the May trend line. This means XRT is starting to outperform again and relative strength in retail is positive for the broader market. Chart 6 shows the Market Vectors Retail ETF (RTH) in a clear uptrend and near a 52-week high.
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Chart 5
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Chart 6
AIRLINE INDEX AND ETF SURGE OFF SUPPORT... Airline stocks got a boost this month as the DJ US Airline Index ($DJUSAR) and the Airline ETF (FAA) surged off support. Chart 7 shows the DJ US Airline Index with support around 58 from the March and August lows. After a sharp decline in late August, the index quickly recovered with a surge back above 62. The mid August high marks resistance at 64 now and follow through above this level is needed for an actual trend reversal. The indicator window shows the price relative ($DJUSAR:$SPX ratio) also wallowing near support. A breakout would signal outperformance by this cyclical group.
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Chart 7
Chart 8 shows the Airline ETF with a similar pattern. The ETF bounced off support at 28 several times since March and this most recent surge looks quite strong. It is also possible that the ETF formed a massive flag or wedge after the surge from late November 2011 to early February. A break above the wedge trend line would signal a continuation higher and target a move to new highs. Note that United Continental (UAL), Delta Airlines (DAL) and Southwest (LUV) account for around 45% of FAA.
