THREE OF FOUR OFFENSIVE SECTORS ARE STILL OUTPERFORMING -- MARKING KEY SUPPORT FOR THREE KEY SECTORS -- SEMI AND INTERNET ETFS CONTINUE TO SHOW RELATIVE STRENGTH -- NETWORKING ETF STRUGGLES TO HOLD UPTREND -- CRUDE ESTABLISHES MEDIUM-TERM RESISTANCE
THREE OF FOUR OFFENSIVE SECTORS ARE STILL OUTPERFORMING ... Link for today's video. The Consumer Discretionary SPDR (XLY), Finance SPDR (XLF) and Technology SPDR (XLK) are perhaps the three most important sectors in the stock market. The consumer discretionary sector is the most economically sensitive sector, the technology sector represents the appetite for risk and the finance sector defines the banking system. Technology (17.8%) and finance (16.4%) are also the two biggest sectors in the S&P 500. Taken with consumer discretionary (12.3%), these three sectors account for almost 50% of the S&P 500. The PerfCharts below show one and three month relative performance for the nine sectors. Relative performance measures the amount of outperformance or underperformance for the sector. XLY, XLK and XLI are outperforming the S&P 500 on the one and three month timeframes because their histogram bars are in positive territory. XLF is underperforming on the one and three month timeframes because its histogram bars are in negative territory. Overall, it is positive to see three of the four offensive sectors outperforming the market on the one and three month timeframes. In other words, sector performance supports the long-term uptrends in the stock market.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
MARKING KEY SUPPORT FOR THREE KEY SECTORS... On the price charts, XLY and XLK are in long-term uptrends and both recorded 52-week highs in mid September. XLF, however, is lagging because it recorded a 52-week high in mid July and remains below its summer highs. Let's look at these charts individually. Chart 3 shows the Consumer Discretionary SPDR in an uptrend with a series of higher lows and higher highs since October 2011. It does not get simpler than this. Broken resistance and the August low mark long-term support. We can expect some volatility on the daily charts, but the long-term trend would not be affected unless XLY breaks the August low. The indicator window shows RSI failing to exceed 70 on the most recent bounce. This is what Wells Wilder would call a bearish failure swing. It is also a bearish divergence and John Murphy pointed out several bearish divergences in Tuesday's market message.
(click to view a live version of this chart)
Chart 3
Chart 4 shows the Technology SPDR (XLK) moving higher with a steady advance since November 2012. Notice how the SPDR stair-stepped higher with a series of higher highs and higher lows. A downtrend starts with a lower low so I will be watching the late August lows closely in the coming weeks. The indicator window shows the Commodity Channel Index (CCI) holding in positive territory since January. Momentum also favors the bulls as long as CCI remains positive. Chart 5 shows XLF with similar characteristics.
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
SEMI AND INTERNET ETFS CONTINUE TO SHOW RELATIVE STRENGTH... Just as the broader market can be broken down into sectors, chartists can also break down a sector into individual industry groups using Dow Jones indices or ETFs. For example, the technology sector can be broken down into the FirstTrust Internet ETF (FDN), the Networking iShares (IGN), the Semiconductor SPDR (XSD) and Software iShares (IGV). All four of these industry group ETFs remain in uptrends with the Internet ETF and Semiconductor SPDR showing the most strength. These uptrends support the long-term uptrend in XLK.
(click to view a live version of this chart)
Chart 6
Chartists can easily compare relative strength for an ETF using the StockCharts Technical Rank (SCTR), which is shown on the four charts below. FDN and XSD are the strongest of the four because they have the highest SCTR values, and these values are above 90. Chart 6 shows FDN with an accelerating uptrend since November 2012. The ETF hit a new high in late September and key support is set with the August lows.
(click to view a live version of this chart)
Chart 7
Chart 7 shows XSD hitting a new high this week and continuing to show relative strength. The August lows and November trend line mark key support in the 54 area. The indicator window shows the SCTR above 70 for most of the last six months. This puts XSD in the top 30% of ETFs for relative performance.
NETWORKING ETF STRUGGLES TO HOLD UPTREND... Chart 8 shows the Networking iShares (IGN) within an uptrend since July 2012, but the advance has struggled over the last few weeks. Notice how IGN crossed above/below 30 at least six times since July 2013. There is, however, still an upward bias on this chart with key support in the 29-30 area. The indicator window shows the SCTR getting a mini-breakout with the move above 70, but falling back almost immediately. IGN shows some relative strength as long as the SCTR remains above 50. Chart 9 shows the Software iShares (IGV) getting a big breakout at the beginning of 2013 and moving sharply higher since late June (65 to 77.5). The August lows mark key support in the 72.5 area.
(click to view a live version of this chart)
Chart 8
(click to view a live version of this chart)
Chart 9
CRUDE ESTABLISHES MEDIUM-TERM RESISTANCE... Even though the stock market rebounded in the second half of the week, Spot Light Crude ($WTIC) remained weak and held its support break. Chart 10 shows weekly candlesticks over the last three years. Resistance in the 110-113 area stems from the 2011 and 2012 highs. With the August spike above 110, we can now add the 2013 high to this major resistance zone. $WTIC pulled back rather sharply the last five weeks and broke support from the August lows. This move reverses the upswing that was in place since April. Broken resistance in the 97.5-98 area turns first support.
(click to view a live version of this chart)
Chart 10
