ENERGY SPDR GETS COLD FEET WITH BEARISH ENGULFING -- THE NOOSE TIGHTENS FOR TWO SEMICONDUCTOR ETFS -- PCP AND TSO SCORE BIG ON SCTR TABLE -- ROCKWELL COLLINS AND GOLDMAN SACHS BREAK RESISTANCE -- SHANGHAI COMPOSITE CHALLENGES FLAG RESISTANCE
ENERGY SPDR GETS COLD FEET WITH BEARISH ENGULFING... Link for today's video. I wrote about the Energy SPDR (XLE) breaking flag resistance with a surge on Friday and this breakout is already getting cold feet as the ETF forms a bearish engulfing pattern. Despite this bearish reversal pattern, chart 1 shows the falling flag breakout holding as broken resistance in the 87 area turns first support. This is the level to watch for a failed breakout. Medium-term the flag lows mark support at 85 and hold the key to the overall uptrend. There is clearly reason to be concerned with XLE because the price of oil remains weak and the sector shows relative weakness. Also notice that exploration and production side of the equation is showing relative weakness. Chart 2 shows the Oil & Gas Exploration and Production SPDR (XOP) with a bear flag over the last two weeks.
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Chart 1
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Chart 2
THE NOOSE TIGHTENS FOR TWO SEMICONDUCTOR ETFS... The Semiconductor SDPR (XSD) and Semiconductor Market Vectors ETF (SMH) are both locked in consolidation patterns. More importantly, the resolution of these patterns will have ramifications for the tech sector and possibly the market overall. Chart 3 shows XSD gapping below 58 and then consolidating with a trading range the last four weeks. This range looks a bit like a rising flag because there is a slight upward slant. Normally, a rising flag after a sharp decline is a bearish continuation pattern. XSD also shows relative weakness as the price relative (XSD:SPY ratio) broke down in late October and remains down. Under performance, a gap and a bearish pattern suggest that the next move will be lower. A break below flag support would confirm the flag and trigger a bearish signal. Despite these short-term negatives, chartists should keep in mind that the medium-term trend is up and the market is strong overall. This means we should not be too surprised on an upside breakout. In other words, the bigger uptrends could pull trump on this short-term pattern. Chart 4 shows SMH with a triangle consolidation over the last four weeks.
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Chart 3
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Chart 4
PCP AND TSO SCORE BIG ON SCTR TABLE... Chartists can monitor changes in the SCTR (StockCharts Technical Rank) to find the movers and the shakers in the stock market. Near the bottom of the home page, there are three tables showing the S&P 500 SCTRs, the ETF SCTRs and the Toronto SCTRs. These tables make it easy to quickly determine the leaders and the laggards. When it comes to SCTR values, I am especially interested in the "Top Up" securities because these are the ones making a statement right now. Today's table shows Tesoro Petroleum (TSO) and Precision Cast Parts (PCP) scoring the biggest gains. Tesoro and several other refiners were featured in the Market Message on October 30th.
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Chart 5
In addition to big SCTR gains, I am also looking for SCTRs between 40 and 60. This is the middle zone of the SCTR, which ranges from zero to one hundred. Stocks and ETFs making a big move into this range are trying to move from relative weakness to relative strength. This 40-60 zones is like a transit zone as stocks move from underperformers to outperformers. The red box for the S&P 500 Top Up table highlights interesting stocks because their SCTR surged and their SCTR value is between 40 and 60. Chartists can look at the individual charts and quickly compare these stocks by clicking PerfChart or CandleGlance links just below each table.
ROCKWELL COLLINS AND GOLDMAN SACHS BREAK RESISTANCE... Chart 6 shows ten CandleGlance charts for the Top Up stocks in the S&P 500. The default CandleGlance charts show two months with candlesticks, the 20-day SMA, the 50-day SMA and volume. Chartists looking for a medium or long-term picture can change the settings at the bottom and add an indicator. I will stick with the short-term candlestick chart for now. Even with these basic charts, we can see Precision Cast Parts (PCP) breaking flag/wedge resistance. Note that PCP has an SCTR of 81 and is clearly one of the top performers in the S&P 500. RockWell Collins (ROK), which is also part of the defense industry and the industrials sector, is breaking triangle resistance. Goldman Sachs (GS), which is part of the finance sector, is breaking above resistance at 165.
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Chart 6
SHANGHAI COMPOSITE CHALLENGES FLAG RESISTANCE... Chinese stocks surged for the second day in a row and the Shanghai Composite ($SSEC) is on the verge of a falling flag breakout. Fundamentally, the government announced sweeping economic reforms on Friday and released further details on Monday. Most notably, these reforms include plans to open up the IPO system and loosen the one-child policy, which should have long-term implications for the Chinese economy. Chart 7 shows the Shanghai Composite working its way lower the last two months as a falling flag takes shape (red trend lines). The index found support near 2100 over the last three weeks and surged above the early November high today. Note that this is an end-of-day (EOD) chart so I drew today's price bar. The index is now challenging flag resistance and a follow through breakout would signal a continuation higher. The February highs mark the next target in the 2450 area. The indicator window shows the price relative, which measures the performance of the Shanghai Composite relative to the S&P 500. Chinese stocks have underperformed US stocks this year and a break above the February trend line is needed to signal a return to outperformance.
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Chart 7
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Chart 8
Chart 8 shows the Hang Seng Index ($HSI) breaking flag resistance and exceeding its May high. This breakout signals a continuation of the July-September advance and projects a move above the February highs. The indicator window shows the Hang Seng relative to the Shanghai Composite. Notice that this price relative turned up in late September and the Hang Seng is outperforming. In contrast to the Shanghai Composite, which is the main index for mainland China, the Hang Seng Index is driven by the finance sector because there are several large banks and property developers in the index.
EEM SURGES OFF SUPPORT AND CHALLENGES OCTOBER HIGH... Strength in China is helping the Emerging Markets iShares (EEM) and the BRIC iShares (BKF). Despite different makeups, these two have similar patterns and both surged off support the last few days. Chart 9 shows EEM, which is more diversified than BFK, breaking out in September and testing broken resistance in the 40-40.5 area twice. The ETF surged off support with a big move the last three days and looks poised to challenge resistance. The indicator window shows the price relative (EEM:SPY ratio) in a downtrend as EEM underperforms the S&P 500. A break above the October high is needed to signal a return to relative strength in emerging markets. Chart 10 shows BKF with similar characteristics.
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Chart 9
