FINANCE AND HOUSING WEIGH ON STOCK MARKET -- PULTE AND KB HOME TESTS KEY SUPPORT LEVELS -- TOLL BROTHERS AND USG CORP SHOW MORE SENSITIVITY -- PUTTING APPLES MARKET CAP LOSS INTO PERSPECTIVE -- APPLE HITS LONG-TERM SUPPORT AS EARNINGS LOOM
FINANCE AND HOUSING WEIGH ON STOCK MARKET... Link for todays video. The stock market was trading flat at midday on Monday with the Finance SPDR (XLF) and the Home Construction iShares (ITB) sporting small declines and showing some relative weakness. Chart 1 shows XLF breaking the November trend line last week and holding this break. Also notice that the ETF failed to hold the flag breakout in early April. Even though there is support from the early April low around 17.75, it looks like the ETF is poised to continue lower and test support in the 17.25 area. The 38.2% retracement and late February low mark support here. The indicator window shows the price relative (XLF:SPY ratio) forming a lower high and edging lower the last few days. This means the finance sector is starting to underperform the broader market.
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Chart 1
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Chart 2
Chart 2 shows ITB peaking in late March and moving towards the late February low over the last several weeks. One could argue that the eight month trend is up because prices are moving from the lower left to the upper right. The ETF, however, is at an important support level in the 21.50 area. Broken resistance and the late February low mark support here. A break below support would be medium-term bearish and have negative implications for the stock market. The indicator window shows the price relative breaking below its late February low as ITB underperforms the market. What would it take to turn positive again? Short-term, the ETF consolidated the last four days and formed a falling channel the last five weeks. A break above 22.50 would provide the first short-term signal, while a break above the channel trend line would be medium-term bullish.
PULTE AND KB HOME TESTS KEY SUPPORT LEVELS... Chart 3 shows KB Home (KBH) testing support from broken resistance and the mid November trend line. The stock firmed with a harami on Thursday-Friday. A break above 21 would argue for a successful test, while a break below 19.5 would reverse the medium-term uptrend. Chart 4 shows Pulte Home (PHM) breaking below its late February low and trending lower since the late March peak. A break above 18.20 is needed to reverse this slide.
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Chart 3
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Chart 4
TOLL BROTHERS AND USG CORP TESTS NOVEMBER LOWS... Toll Brothers (TOL) and USG Corp (USG) represent the high-beta end of the housing industry. Notice how these two peaked before ITB and declined all the way to their November lows. They showed relative weakness in February-March and led the way lower when the group turned lower. In other words, housing stocks sneezed and these two caught a cold. Toll Brothers is a luxury homebuilder and USG produces gypsum-related building products, such as sheetrock. Chart 5 shows TOL forming a harami as it consolidated on Friday. In fact, the stock has stalled the last 4-5 days. A break above 31.8 would suggest a successful support test. Chart 6 shows USG also forming a harami on Thursday-Friday and getting a small bounce today. RSI became oversold in early April and has a small bullish divergence working. A break above the early April high would turn momentum bullish again.
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Chart 5
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Chart 6
PUTTING APPLES MARKET CAP LOSS INTO PERSPECTIVE... Apple (APPL) had a market cap of around $650 billion when its was trading near 700 in September 2012. After a decline below 400, the stock now has a market cap near $369 billion. Thats a difference of $281 billion dollars. Apple is now the second biggest company in the index, behind ExxonMobil (XOM) with a market cap of $392 billion. Johnson & Johnson (JNJ) is the third largest company with a market cap of $236 billion. The amount of market cap lost by Apple is more than the market cap of JNJ. Moreover, this lost market cap is greater than the current market cap of 498 companies in the S&P 500. Apple is excluded and ExxonMobil is bigger. PerfChart 7 below shows performance for the top ten S&P 500 stocks since mid November. The most defensive names are handily outperforming the most offensive names.
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Chart 7
APPLE HITS LONG-TERM SUPPORT ZONE AS EARNINGS LOOM... There are a slew of earnings report scheduled this week, but the market will probably focus the most on Apple when its reports Tuesday after the close. Apple is closely watched because it accounts for 12.84% of the Technology SPDR (XLK), 11.53% of the Nasdaq 100 ETF (QQQ) and 2.74% of the S&P 500 ETF (SPY). I have no idea whether or not Apple will beat or how the stock market will react to their earnings. I can, however, offer some insights on the chart. Chart 8 shows weekly bars over the last three years. The stock advanced from 225 to 700 from May 2010 to September 2012. After peaking at 700, the stock declined below 400 this month with a rather sharp decline. The seven month trend is clearly down, but the stock is trading in a large support zone from a consolidation that formed in the second half of 2011 (yellow area). Broken resistance in the 360 area marks the bottom of this support zone. Chart 9 shows daily bars defining the current downtrend. Broken support, the mid April high and the September trend line combine to mark resistance at 440. A break above this level would reverse the seven month downtrend and put Apple back on the bullish track.
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Chart 8
