DOW HOLDS LONG-TERM SUPPORT WITH BIG BOUNCE -- RETAIL SPDR HITS RESISTANCE AS CONSUMER DISCRETIONARY SPDR BREAKS OUT -- QQQ RETREATS FROM OVERBOUGHT LEVELS -- AMAZON HITS NEW HIGH AS APPLE TEST SUPPORT AGAIN
DOW HOLDS LONG-TERM SUPPORT WITH BIG BOUNCE... Link for todays video. Lets start the week by stepping back and looking a long-term chart for the Dow Industrials. Chart 1 shows weekly bars for the Dow Industrials with the 104-week simple moving average. This two year moving average captures the long-term trend. Notice that the average is rising and the Dow has been above it for over a year. The Dow gyrated around this moving average during the 2011 debt ceiling debacle and then held above throughout the 2012 advance. This moving average and the November low combine to mark long-term support at 12400.
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Chart 1
The indicator window shows the Percent Price Oscillator (5,35,5), which is a momentum oscillator. Notice how the indicator dipped just below the zero line and then turned up in late 2011, mid 2012 and late 2012. The current upturn means medium-term momentum is bullish and improving. Combined with a bigger uptrend, this calls for a challenge to the 2012 highs. What would turn this picture bearish? First, a PPO move below its signal line would be negative. Second, a PPO break into negative territory would be bearish, especially if combined with a support break in the Dow.
RETAIL SPDR HITS RESISTANCE AS CONSUMER DISCRETIONARY SPDR BREAKS OUT... Last week was quite the week with many stocks and ETFs surging to 52-week highs. Chartists saw the Russell 2000 ETF, the S&P MidCap 400 SPDR, the Finance SPDR, the Industrials SPDR and others surge above their 2012 high. The Consumer Discretionary SPDR (XLY) also joined the party with a gap and break above resistance. Chart 2 shows XLY holding support at 46 throughout December and breaking to new highs with a massive gap. The gap zone and broken resistance turn into first support to watch on any throwback. Also note that XLY is short-term overbought after last weeks big surge. A throwback to broken resistance would alleviate oversold conditions and possibly set the stage for a continuation higher. As far as the bigger uptrend is concerned, the December lows mark a clear support zone in the 46-46.5 area. The bulls rule as long as this support zone holds. The indicator window shows RSI confirming the November breakout and uptrend. Notice that RSI found support in the 40-50 zone twice in December. A break below 40 would turn medium-term momentum bearish.
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Chart 2
Retail is an important industry group within the consumer discretionary sector. I noted some concern with the Retail SPDR (XRT) last week because it failed to hold its breakout. Even though chart 3 shows the ETF still near resistance from the October-December highs, the cup appears to be half full for the bulls right now. Note that XRT broke the triangle trend line and is holding last weeks gap. I would treat this gap as bullish as long as it holds and mark gap support at 62, which includes a small buffer. Long-term support remains at 60. The indicator window shows the reason for concern because XRT continues to underperform SPY. The price relative has been moving lower since late November and the mid December high marks resistance. Amazon, the king of online retailing, is clearly benefitting from a major shift in shopping habits. Chart 4 shows AMZN hitting a new high.
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Chart 3
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Chart 4
QQQ RETREATS FROM OVERBOUGHT LEVELS... Chart 5 shows the Nasdaq 100 ETF (QQQ) surging along with the rest of the market last week and breaking above its December highs. Even though this breakout is medium-term bullish, it created a short-term overbought situation after a ~5% surge. This makes the ETF ripe for a consolidation or a pullback. Broken resistance and the gap mark a potential support zone in the 65.5-66 area. Pullbacks should be relatively shallow after a strong breakout. A deep pullback below 65 would be a sign of weakness. Also note that RSI held the 40-50 zone throughout December and momentum remains bullish as long as this holds.
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Chart 5
There is a potentially bearish pattern shaping up on the chart, but I am putting this pattern on the back burner because the breakout is holding for now. Notice that the November-January advance retraced 61.80% of the prior decline and a rising wedge could be forming. This combination is potentially bearish. However, the wedge is still rising and the breakout is holding. The wedge trend line and late December low mark key support at 63.5. QQQ depends a lot on Apple. Chart 6 shows Apple pulling back from resistance and testing its support zone yet again. Chart 7 shows the Nasdaq 100 Equal-Weight ETF (QQEW) hitting a new high last week and continuing to outperform QQQ.
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Chart 6
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Chart 7
COAL ETF BREAKS HEAD-AND-SHOULDERS RESISTANCE... The Coal Vectors ETF (KOL) was quite the laggard in 2012, but this ETF is showing some promise in 2013 with a break above the highs extending back to June. Chart 8 shows KOL forming a large base from June to December. Notice that the ETF traded between 21 and 26 for six months. Also notice that an inverse head-and-shoulders formed with neckline resistance at 26. With a gap and surge to start the year, the ETF broke this resistance level to complete the base and start an uptrend. The head-and-shoulders pattern extends around 5 points (21 to 26). Adding this to the neckline breakout produces a target in the 31 area. The late December lows mark first support in the 24.4 area.
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Chart 8
XME BREAKS CHANNEL RESISTANCE... Chart 9 shows the Metals & Mining SPDR (XME) playing a little catch up with a break above channel resistance last week. XME surged from late July to early September and then corrected with a large falling channel. The ETF held support at 40 twice and broke the channel trend line with last weeks gap. The late December lows mark first support in the 43.4 area. A strong breakout should hold and a move below this level would negate the breakout. Based on the measured move methodology, the upside target for this breakout is around 51. The length of the prior move is added to the channel low for an upside. Keep in mind that upside targets are not fixed or guaranteed. They are simply estimates that need to be revised as the chart evolves.
