S&P 500 AND DOW SURGE INTO RESISTANCE ZONES -- CONSUMER DISCRETIONARY SECTOR SHOWS RELATIVE STRENGTH -- XLY BREAKS CHANNEL TREND LINE -- OIL CONSOLIDATES WITHIN DOWNTREND -- ENERGY ETFS TIED TO PRICE OF CRUDE -- GOLD ETF STALLS AT KEY RETRACEMENT
S&P 500 AND DOW SURGE INTO RESISTANCE ZONES... Link for todays video. Stocks caught a strong bid Thanksgiving week as the S&P 500 and the Dow Industrials surged back towards broken support. Despite some impressive gains since November 19th, resistance is at hand and the going could get tougher real soon. Chart 1 shows the S&P 500 moving back above 1400 with a 4% gain the last seven days. Even though this gain is impressive from a percentage standpoint, keep in mind that the index was quite oversold in mid November and some sort of oversold bounce was expected. We have now seen that bounce and resistance is at hand in the 1400-1430 area. Broken supports and the 50-61.80% retracement zone combine to mark resistance here. The 1430 support break holds the key, and it has yet to be negated. The indicator window shows the Commodity Channel Index (CCI) moving into positive territory over the last few days. The indicator, however, remains below +100 and has not exceeded this level since mid September. Upside momentum aint what is used to be and a surge above +100 is needed to remedy this situation.
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Chart 1
Chart 2 shows the Dow Industrials surging back to the 13000 area. Broken support and the 50% retracement mark the lower end of a resistance zone just above 13000. The indicator window shows RSI moving into the 50-60 zone. RSI typically trades in the 40-80 zone during uptrends and the 20-60 zone during downtrends. RSI broke below 40 in late October to signal the start of a downtrend. This means the 50-60 zone now becomes resistance and the first test for RSI.
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Chart 2
CONSUMER DISCRETIONARY SECTOR SHOWS RELATIVE STRENGTH... The consumer discretionary sector and retailers were in the spot light with black Friday, cyber Monday and the start of the holiday season. On a relative performance basis, the Consumer Discretionary SPDR (XLY) is showing confidence in the American consumer because it is outperforming all sectors. Chart 3 shows the S&P Sector PerfChart for the month of November. XLY is the only sector showing a gain. Seven of the nine sectors are down and the Consumer Staples SPDR (XLP) is flat. Note that the S&P 500 is also down and this PerfChart does not include Tuesdays data. XLY shows relative strength because it is the only one with a gain. XLP also shows relative strength because it is holding up better the S&P 500. It is a rare to see the consumer discretionary and consumer staples showing the most relative strength because these two sectors are diametrically opposed. The Energy SPDR (XLE), Finance SPDR (XLF) and the Utilities SPDR (XLU) show relative weakness with the largest losses.
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Chart 3
XLY BREAKS CHANNEL TREND LINE ... Chart 4 shows XLY breaking above the channel trend line and challenging the early November high with a strong move the last seven days. This channel breakout is bullish until proven otherwise. The broken resistance zone around 46 now marks a support zone and a move below 46 would negate the breakout. Resilience in this key sector is a positive for the market overall. Keep in mind that the consumer discretionary sector is the most economically sensitive sector. Relative strength suggests that consumer spending may just carry the day once again.
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Chart 4
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Chart 5
Chart 5 shows the Retail SPDR (XRT) surging off its 200-day moving average with a big move the last seven days. The advance recouped most of the early November decline, but the ETF has yet to take out the early November high. In other words, the progression of lower lows and lower highs remains in place. A move above 64 is needed to break this progression and fully reverse the downtrend that has been in place since mid September.
OIL CONSOLIDATES WITHIN DOWNTREND... The US Oil Fund (USO) managed to firm the last four weeks, but has yet to break key resistance and actually reverse its downtrend. Chart 6 shows USO trading on either wide of 32 since late October. The ETF failed at 33 twice this month and chartists can now set this level as key resistance. A breakout here would be bullish for oil. Some early signs of strength are emerging as the Commodity Channel Index (CCI) surged above +100 for the first time since early September. Also notice that this consolidation is taking place near the 61.80% retracement and a rising wedge formed. Nevertheless, it is still a consolidation within a downtrend and a break above 33 is needed for a reversal. Chart 7 show Spot Light Crude ($WTIC) with resistance marked at 90.
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Chart 6
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Chart 7
ENERGY ETFS TIED TO PRICE OF CRUDE... The Energy SPDR (XLE) and the Oil & Gas Equipment/Services SPDR (XES) bounced along with the stock market last week, but both remain in downtrends and are unlikely to break resistance without help from crude. Chart 8 shows XLE working its way lower since mid September. Normal trend lines did not work so I am using the Raff Regression Channel to define the downtrend. The middle line is a linear regression and the outer lines are equidistant from the furthest high or low. The upper line and the early November high mark resistance in the 72-73 area. A break above this level is needed to reverse the downtrend. Chart 9 shows XES with resistance in the 33.5 area.
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Chart 8
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Chart 9
GOLD ETF STALLS AT KEY RETRACEMENT AS DOLLAR BOUNCES OFF BROKEN RESISTANCE... Its been a good month for gold as the Gold SPDR (GLD) broke the October trend line at the beginning of November and surged above 168 last week. As with the stock market, the short-term trend is up, but resistance is nigh as GLD hits broken support and the 61.80% retracement. Chart 9 shows GLD stalling on Monday and edging lower in early trading on Tuesday. There is nothing to be alarmed about just yet. The early November trend line and last weeks low mark the first supports to watch.
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Chart 10
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Chart 11
As always, chartists need to watch the Dollar when it comes to gold, and the stock market for that matter. Both gold and stocks benefitted from a plunge in the greenback last week. The Dollar, however, is rebounding on Tuesday as broken resistance turns into first support. Chart 10 shows the US Dollar Fund (UUP) breaking out near 22 in early November. Broken resistance, the late October consolidation and the 50-61.80% retracement zone combine to mark support in the 21.9-22 area. The Dollar was overbought above 22.20 and the throwback to broken resistance alleviated these overbought conditions. Further strength above 22.15 would be quite bullish for the Dollar and this in turn could weigh on stocks and gold. A move below 21.90 would benefit stocks and gold.
