UTILITIES SECTOR PERKS UP IN OCTOBER -- CLOTHING AND ACCESSORIES INDEX WEIGHS ON XLY -- RETAIL APPAREL INDEX UNDERPERFORMS BROADER MARKET -- CRUDE FAILS AT BROKEN SUPPORT -- OIL SERVICE ETF HITS RESISTANCE AT KEY RETRACEMENT
UTILITIES SECTOR PERKS UP IN OCTOBER... Link for todays video. October has been a rough month for the market so far, but the Utilities SPDR (XLU) is holding its own and starting to outperform again. PerfChart 1 shows three offensive sectors (XLF, XLI, XLY) and three defensive sectors (XLU, XLP, XLV). The Technology SPDR (XLK) is not shown, but it is severely underperforming this month. The top performing sectors for October are finance (XLF) and utilities (XLU). Outside of technology, the consumer discretionary sector (XLY) is the weakest sector. Even though the finance sector shows relative strength, relative weakness in the consumer discretionary and technology sectors is not a good sign for the market overall. Relative strength in the utilities also reflects a defensive posture as investors opt for safety over return.
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Chart 1
Chart 2 shows the Utilities SPDR finding support near the 50% retracement and breaking resistance in early October. The ETF has been working its way higher the last five weeks. I would consider the early October breakout bullish, and valid, as long as support from last weeks low holds. The indicator window shows the price relative turning up in late September and moving higher the last few weeks. XLU is outperforming SPY over this period because SPY is flat and XLU is higher.
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Chart 2
APPAREL RELATED STOCKS WEIGH ON CONSUMER DISCRETIONARY SECTOR... The Sector Summary is a great tool for diving into sectors and finding the big movers. The sector summary starts with the nine sectors. Chartists can drill down into these sectors by clicking on the links in the name column. Clicking on the Consumer Discretionary SPDR (XLY) will show the 20+ industry groups associated with this sector. It is then possible to sort by change of percent change to see the biggest winners and losers. The first image shows the nine sectors. The second image shows the worst performers within this sector. Notice that the DJ US Clothing & Accessories Index ($DJUACF) and the DJ US Apparel Retailers Index ($DJUSRA) are under pressure on Monday.
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Chart 3
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Chart 4
RETAIL APPAREL INDEX UNDERPERFORMS BROADER MARKET... Chart 5 shows the DJ US Clothing & Accessories Index ($DJUACF) moving higher from July to September and then forming a lower high in mid October. This lower high could foreshadow a trend reversal. Also notice that the index met resistance near the 61.80% retracement mark over the last two months. This months lower high indicates that buying pressure is not as strong as last month. Even so, we have yet to see a support break, which would reflect an increase in selling pressure. Broken resistance in the 250 area turns into support and this is the level to watch going forward. A break would be bearish for this index.
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Chart 5
Chart 6 shows the DJ US Apparel Retailers Index ($DJUSRA) peaking in mid September and moving lower the last five weeks. This chart looks similar to the Technology SPDR. Both peaked in mid September, both declined the last five weeks and both are underperforming the broader market. Chart 7 shows the Retail SPDR (XRT) testing support with a modest decline on Monday.
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Chart 6
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Chart 7
CRUDE FAILS AT BROKEN SUPPORT... December Light Crude Futures ($CLZ12) broke down in mid September and then failed at this support break as it turned resistance in October. Chart 8 shows broken support turning into resistance in the 94 area. This support break reversed the prior uptrend (June to September) and remains in force until proven otherwise. At the very least, it would take a move above the October highs to negate this support break and put the bulls back in charge. The indicator window shows MACD turning negative towards the end of September. This momentum oscillator is now stalling and a signal line break would further the bearish argument. Chart 9 shows the US Oil Fund (USO) with resistance at 35.
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Chart 8
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Chart 9
OIL SERVICE ETF HITS RESISTANCE AT KEY RETRACEMENT... The Oil Service HOLDRS (OIH) surged early last week, but hit resistance in the 50-61.80% retracement zone and declined sharply on Friday. Chart 10 shows OIH breaking the June trend line with the decline below 40. The ETF was oversold after this decline and last weeks bounce above 41 alleviated this oversold condition. Notice how the ETF went from oversold to overbought as the Stochastic Oscillator surged above 80 last week. This momentum oscillator is considered both overbought and bullish when above 80. A close below 80 today would signal a down turn in momentum and possible continuation of the September decline for OIH. Chart 11 shows the Oil & Gas Equipment/Services SPDR (XES) with similar characteristics.
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Chart 10
