BOEING HITS NEW HIGH ON RECORD BACKLOG -- XLI CLOSES IN ON CHANNEL TREND LINE -- CATERPILLAR LAGS INDUSTRIALS SECTOR AND MARKET -- METALS AND MINING SPDR HITS RESISTANCE WITH SHARP REVERSAL -- HOME CONSTRUCTION ISHARES MOVES INTO GAP ZONE
BOEING HITS NEW HIGH ON RECORD BACKLOG... Link for today's video. Boeing (BA) is leading the industrials sector higher with a fresh 52-week high as investors reacted positively to today's earnings report. Of note, the company reported a record $410 billion order backlog and some $40 billion worth of new orders for the quarter. Even though the stock sold off after a strong open on Wednesday, chart 1 shows the stock in a clear uptrend since the early March breakout. There were some brief downward spikes in late June and mid July because of problems with the new Dreamliner, but these were not enough to affect the overall uptrend. Broken resistance and the late February trend line mark first support in the 103 area. The June-July lows mark key support in the 96-99 area.
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Chart 1
XLI CLOSES IN ON CHANNEL TREND LINE... Strength in Boeing helped lift the Industrials SPDR (XLI) to a new high this week. Chart 2 shows the Industrials SPDR within a clear uptrend with a rising channel taking shape. Note that nine of the ten top holdings hit 52-week highs during July. Caterpillar is the only one of the top ten that did not hit a new high. Returning to the price chart, XLI could extend to the upper trend line of the rising channel, which implies another point of upside. The ETF is up almost 10% from its late June low and getting ripe for some sort of pullback or consolidation. Broken resistance turns first support in the 44 area. The indicator window shows XLI relative to the S&P 500. The XLI:$SPX ratio held support from the June lows and extended its uptrend with a surge last week. This means XLI is outperforming the S&P 500 (broader market).
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Chart 2
CATERPILLAR LAGS INDUSTRIALS SECTOR AND MARKET... Caterpillar (CAT) is under pressure on Tuesday as investors react to an earnings miss. Slower growth in China got the blame. Note that Chinese flash PMI hit an 11-month low in July and remains well below 50 (47.7). Chart 3 shows CAT falling sharply from February to April and then forming a large triangle. This looks like a consolidation within a bigger downtrend. The stock recently peaked around 88, which is below the May peak. Today's small support break at 85 is short-term bearish and argues for a test of triangle support. A break below triangle support would signal a continuation lower and make Jim Chanos a lot of money. The indicator window shows the price relative in a clear downtrend as CAT consistently underperforms the broader market. Chart 4 shows competitor Joy Global (JOY) hitting a new low in June and testing this low with a sharp decline the last six days. Notice that the Accumulation Distribution Line recorded a series of new lows over the last four weeks as downside volume expanded.
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Chart 3
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Chart 4
METALS AND MINING SPDR HITS RESISTANCE WITH SHARP REVERSAL... Caterpillar and Joy Global both sell mining equipment so it is little surprise that mining stocks are getting hit as well today. After hitting a new low in late June, the Metals and Mining ETF (XME) went on a tear with a surge from 32 to 37 over the last four-five weeks. This surge is impressive on a percentage standpoint (15%), but it is still considered a counter trend advance within a bigger downtrend. Chart 5 shows XME with the Zigzag indicator set at 15%. This pink line shows price moves that are 15% or more. Notice that there have been four such moves in 2013 alone. That's at pretty volatile security. Overall, the trend is down because the ETF formed lower lows in April and June. The July high has yet to even challenge the May high and it looks like lower highs will persist. The indicator window shows XME relative to SPY. Even though XME outperformed over the last four weeks, it has underperformed throughout 2013 and remains relatively weak overall. Chart 6 shows the Shanghai Composite ($SSEC) bouncing along with XME over the last four weeks. The overall trend, however, is down.
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Chart 5
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Chart 6
HOME CONSTRUCTION ISHARES MOVES INTO GAP ZONE... The Home Construction iShares (ITB) gapped up and broke resistance the second week of July, but did not follow through and moved back in the gap zone. Ideally, a strong gap should hold and we should see follow through after the gap. Failure to follow through on the gap is a negative. A close below 22.50 fill the gap and negate the breakout signal from early July. Overall, it is possible that a head-and-shoulders pattern is taking shape with the 2013 lows marking neckline support. A break below these lows would confirm the pattern. The indicator window shows RSI hitting resistance in the 50-60 zone in June and now July. This zone typically acts as resistance during a downtrend.
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Chart 7
MERITAGE HOMES SELLS OFF AFTER EARNINGS REPORT ... Several homebuilders are scheduled to report earnings today and tomorrow. The small charts below show resistance with the red lines. Meritage Homes (MTH) reported today, but the stock sold off after the report. Ryland (RYL) reports today as well. The stock is currently consolidating in the 40-42.50 area. DR Horton (DHI) and Standard Pacific (SPF) report on Thursday. DHI shows weakness because it broke the February-April lows with the June decline. SFP failed to follow through on the gap and moved into the gap zone with a sharp decline today.
