DOW DIGESTS GAINS AS SUPPLY AND DEMAND EQUALIZE -- JUST A SHORT PULLBACK OR MORE FOR THE S&P 500 EW INDEX -- PRICE RELATIVE BREAKS SUPPORT FOR RETAIL SPDR -- TECHNOLOGY SPDR REFUSES TO BUCKLE -- KEY SUPPORTS FOR INTERNET, NETWORKING AND SEMICONDUCTOR ETFS

DOW DIGESTS GAINS AS BUYING AND SELLING PRESSURE EQUALIZE... Link for todays video. There are two ways to alleviate overbought conditions: correct with a pullback in prices or consolidate with a trading range. The Dow may be taking the latter road with a consolidation in the 13800-14000 area. Chart 1 shows the Dow surging above its September high with a steep advance. This move saw the Dow gain over 1000 points in just five weeks. We do not need a momentum oscillator to know that the Dow was overbought after such a big move in a sharp period of time. Since first moving above 14000 at the beginning of February, the Dow moved into a consolidation as buying pressure and selling pressure equalized. Buying pressure still has the upper hand because the prior move was up. This consolidation could be the pause that refreshes before a continuation higher. The February lows hold the key and mark support in the 13800-13900 area. A break below 13800 would tilt the balance towards selling pressure and argue for a retracement of the November-February advance. Broken resistance and the early January low mark next support in the 13300-13400 area.

(click to view a live version of this chart)
Chart 1

A SHORT-SHARP PULLBACK FOR THE S&P 500 EQUAL-WEIGHT INDEX... Stocks experienced a sharp and sharp pullback last week. Release of the Fed minutes got the blame because some Fed governors voiced concern with quantitative easing. In other words, the stock market was afraid the Fed would pull the punch bowl. Never mind that stocks were already overbought and ripe for a pullback or a consolidation. Chart 2 shows the S&P 500 Equal-Weight Index ($SPXEW) bouncing off its February low on Friday. Is this just another short-sharp pullback? Of, will the decline continue and evolve into a deeper correction? At this point, we must treat it as the short-sharp pullback that it is. The February lows around 2300 held and the decline was just two days. This may be enough to affect the short-term trend, but it is not enough to affect the medium-term trend, which remains up. With this bounce, chartists can now mark medium-term support at last weeks low. A break would signal renewed selling pressure and open the door to a deeper correction. Chart 3 shows the S&P 500 establishing support in the 1490-1500 area with a bounce.

(click to view a live version of this chart)
Chart 2

(click to view a live version of this chart)
Chart 3

PRICE RELATIVE BREAKS SUPPORT FOR RETAIL SPDR ... Even though the major index ETFs are holding up for now, there is growing concern because a number of key ETFs broke down over the last few weeks. The Materials SPDR (XLB), the Home Construction iShares (ITB), the Copper Miners ETF (COPX), the Metals and Mining ETF (XME) and the Steel ETF (SLX) were hit hard this month. Their breakdowns were covered in the market message over the last two weeks. The concern is that weakness could expand to other areas of the market and ultimately affect the major index ETFs. The Retail SPDR (XRT) is at the top of my watch list because February has been difficult for this ETF and its price relative broke to a four week low. Chart 4 shows XRT surging above 68.50 last Tuesday and then forming a large bearish engulfing on Wednesday. XRT managed to firm around 67 the last three days and I am now watching support in the 66.5-67 area. A break below this level would confirm the bearish engulfing pattern and target a move towards next support in the 64 area. Such a breakdown would be quite negative for stocks because retail is an important industry group. The indicator window shows the price relative failing to take out its November high and breaking support the last few days. This means XRT is starting to show relative weakness. Chart 5 shows the Consumer Discretionary SPDR (XLY) battling support from the February lows and the price relative breaking trend line support last week.

(click to view a live version of this chart)
Chart 4

(click to view a live version of this chart)
Chart 5

TECHNOLOGY SPDR REFUSES TO BUCKLE - OR BUDGE... Buying pressure has been short-lived and sporadic for the Technology SPDR (XLK), but the ETF continues to hold support and carry a bullish bias. Chart 6 shows XLK with two short surges and two relatively long consolidations. The ETF surged for two weeks at the end of November and then consolidated for four weeks. XLK then surged with a two-day move above 29.75 and then consolidated the last eight weeks. Is XLK due for another surge? Well, the ETF bounced off support Friday, but is already struggling to hold gains on Monday. This bounce reinforces support in the 29-29.25 area and keeps the bulls alive. In fact, the pink lines show a rising channel with a slight upward bias since early January. Also notice that the Aroon Oscillator has been mostly positive since mid December. A break below -30 would turn this directional indicator negative. Chart 7 shows the Nasdaq 100 ETF (QQQ) getting a bounce off support in the 66-66.5 area and RSI bouncing in the 40-50 zone.

(click to view a live version of this chart)
Chart 6

(click to view a live version of this chart)
Chart 7

KEY SUPPORTS FOR INTERNET, NETWORKING AND SEMICONDUCTOR ETFS ... Using ETFs, chartists can divide the technology sector into four different industry groups: biotech, internet, networking and semiconductor. We can then make an assessment for the technology sector based on the aggregate performance of these four ETFs. Chart 8 shows the Biotech SPDR (XBI) consolidating between 94 and 97, and then breaking down with a sharp move lower on Monday. It looked like a falling flag/channel was taking shape, but todays support break negates that pattern. XBI shows relative weakness since mid January and the next support zone resides in the 90 area. Chalk one up for the bears. Chart 9 shows the FirstTrust Internet ETF (FDN) forming a bearish engulfing on Wednesday and then testing support in the 42 area. A break below the February lows would be bearish and argue for a retracement of the November-February surge. FDN still gets a bullish bias because support has yet to break.

(click to view a live version of this chart)
Chart 8

(click to view a live version of this chart)
Chart 9

(click to view a live version of this chart)
Chart 10

(click to view a live version of this chart)
Chart 11

Chart 10 shows the Networking iShares (IGN) establishing support in the 28.5 area with two bounces since late January. A break below these lows would target a move towards broken resistance in the 27.5-28 area. Chart 11 shows the Semiconductor SPDR (XSD) forming a two bearish candlestick patterns around 50 and gapping down on Thursday. This gap is holding as the stock opened above 49 today and then moved lower. The next support zone resides in the 46 area. Of the four ETFs, the Biotech SPDR and Semiconductor SPDR are trading below support. The other two are holding support for now and this puts the tech sector at neutral. Watch out if one of other two break support.