TECH STOCKS WEIGH ON STOCK MARKET -- SEMICONDUCTOR SPDR FORGES A BREAKAWAY GAP -- CREE, ALTERA AND ARM HOLDINGS LEAD SEMIS LOWER -- LOW HITS NEW HIGH AS HOMEBUILDERS BOUNCE -- OIL PLUNGES TO POTENTIAL SUPPORT ZONE
TECH STOCKS WEIGH ON STOCK MARKET... Link for today's video. Weakness in the technology sector weighed on the stock market Wednesday. Chart 1 shows the Equal-weight Technology ETF (RYT) falling over 1% with a long black candlestick. I am using this equal-weight ETF to capture performance for the average tech stock. In contrast, the Technology SPDR (XLK) is a market capitalization weighted ETF that emphasizes large-caps. Apple (14.83%), Google (8.84%) and Microsoft (8.23%) account for over 30% of XLK. The big trend for RYT is still up, but I am concerned with relative weakness because the price relative broke below its late August low. First, the price chart still sports of series of rising peaks and rising troughs as prices move from the lower left to the upper right (hint: uptrend). RYT hit a 52-week high on Tuesday and then fell back from this high on Wednesday. The ETF remains well above its early October low and has yet to even test key support. The indicator window shows the RYT:RSP ratio, which shows the performance of RYT relative to the S&P Equal Weight ETF (RSP). Notice that RYT led from late April until early October. Relative strength has since given way to relative weakness as the price relative broke its late August low. Even though RYT remains in an uptrend, relative weakness is a concern that should be monitored carefully. Chart 2 shows the Technology SPDR (XLK) for reference.
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Chart 1
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Chart 2
SEMICONDUCTOR SPDR FORGES A BREAKAWAY GAP... Chip stocks are to blame for much of the weakness in the technology sector. Chart 3 shows the Semiconductor SPDR (XSD) failing to hold its recent breakout and falling sharply on Wednesday. The ETF only held this breakout for a few days and then gave it all back today. The inability to hold the breakout is negative and the gap down is short-term bearish. At this point, chartists should consider this gap as a breakaway gap, which is bearish until filled. The indicator window shows the price relative (XSD:SPY ratio) stalling out in early October and then breaking down this week. XSD showed relative strength when the price relative hit a new high in early October, but now shows sudden relative weakness with this breakdown in relative performance. Now before getting too bearish, note that the bigger trend remains up because XSD did record a new high in mid October and has yet to break key support in the 54 area.
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Chart 3
CREE, ALTERA AND ARM HOLDINGS LEAD SEMIS LOWER... Earnings reports are taking their toll on semiconductor stocks today. Chart 4 shows Cree Inc (CREE) forming a huge gap down for the second time in three months. Talk about volatility. The stock hit resistance at 76 in August and then gapped below 64. The stock surged back to 76 after a breakout in early October, but again failed at resistance and gapped below 64. Even though CREE firmed after the gap, it will take time to work off this technical damage and regroup.
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Chart 4
Chart 5 shows Altera (ALTR) breaking channel resistance and then exceeding 37.5 with good volume last week. This breakout did not last long as the stock stalled for three days and gapped down on Wednesday. Earnings season is a treacherous time for traders. In contrast to CREE, notice how ALTR continued lower after the gap and has a long black candlestick working.
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Chart 5
Chart 6 shows ARM Holdings (ARMH) hitting a 52-week high on Monday and falling back to support on Wednesday. Even though ARMH failed to hold its breakout, the overall trend remains up and I am marking key support in the 45-46 zone. This is an important test. A move below the October low and June trend line would reverse the bigger uptrend.
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Chart 6
LOW HITS NEW HIGH AS HOMEBUILDERS BOUNCE... The Home Construction iShares (ITB) started the week with a decline, but rebounded over the last two days to affirm key support. Chart 7 shows ITB breaking the mid September trend line with a big move above 22 last week and then falling back the next two days. This pullback did not last long as ITB surged above resistance on Wednesday. Even though the ETF is trading off its intraday high, the breakout is there and chartists can keep key support at 21. The indicator window shows the price relative turning up this week, but more relative strength is needed for a breakout.
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Chart 7
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Chart 8
Chart 8 shows Lowes Companies (LOW) hitting a new high with a move above 49 on Wednesday. This is not the most exciting stock, but it has been in a steady uptrend since the wedge breakout in late June. The October low marks key support in the 46 area. LOW operates home improvement stores and Home Depot (HD) is its main competitor. Chart 9 shows HD seriously underperforming LOW and the S&P 500. HD has yet to recover from the September bearish engulfing and lower high. Downside volume has also been outpacing upside volume since mid August. HD does show some signs of firmness the last five days, but an upside surge and/or break above 77 is needed to turn bullish again.
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Chart 9
OIL PLUNGES TO POTENTIAL SUPPORT ZONE... Spot Light Crude ($WTIC) is getting hammered this week with a 3+ percent decline in three days. There are a number of fundamental factors at work. First, the market continues to price out the Syrian and Iranian premiums. Second, the Energy Information Agency reported an above-expectations increase in oil supplies. Third, domestic production is at its highest level in over 20 years. Yes, the US is producing its way into another oil glut. Chart 10 shows Spot Light Crude breaking support in early October and moving below 98 today. This is an end-of-day (EOD) chart, but I manually extended the black candlestick to reflect today's price. Even though the trend here is down, oil is in a potential support zone that bears watching. Notice that broken resistance and the 50-62% retracement zone combine to mark potential support here. However, before taking this support zone seriously, we need some sort of bullish catalyst on the price chart.
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Chart 10
The indicator window shows the Correlation Coefficient ($SPX,10) turning negative at the beginning of September. Oil is now down around 10% in the last seven weeks, while the S&P 500 is up over 5%. Stocks and oil were positively correlated for the most part, but this positive correlation turned negative over the last seven weeks. Chart 11 shows the US Oil Fund (USO) in a downtrend since early September. The ETF is, however, getting oversold and in a potential support zone.
