FIVE OF NINE SECTOR SPDRS HIT NEW HIGHS -- IWM BREAKS FLAG RESISTANCE, BUT STILL LAGS -- SPY SURGES TO NEW HIGH WITH MOMENTUM BREAKOUT -- BREADTH INDICATORS SURGE AND ESTABLISH KEY SUPPORT -- HIGH-LOW PERCENT SURGES BACK ABOVE 15%
FIVE OF NINE SECTOR SPDRS HIT NEW HIGHS... Link for today's video. The bulk of the evidence remains bullish for stocks as we close one year and head into another. The long-term uptrends were affirmed with new highs in most of the major indices this month. The AD Lines and AD Volume Lines turned back up and new 52-week highs expanded with last week's big move. Five of the nine sector SPDRs hit new highs today and all four offensive sectors were on this list. It is hard to argue with new 52-week highs in XLF, XLI, XLK, XLY and XLB. Even though there may be pockets of weakness, the bulls are clearly hitting enough groups to power the overall market higher. For investors, the long-term uptrends have been affirmed and the December lows can be used to mark key support levels. For traders, the Santa Claus rally started last week and could continue this week. Historically, the week between Christmas and New Years has been quiet with low volumes and uneventful price moves. On a programming note, I will be taking time off between now and New Years, and will return to the Market Message on Friday, January 3rd. Happy Holidays! -Art
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Chart 1
IWM BREAKS FLAG RESISTANCE, BUT STILL LAGS... Small-caps perked up over the last several days as the Russell 2000 ETF (IWM) broke out of its flag and challenged resistance. Chart 2 shows IWM breaking out around 112 and surging to the 114 area. Broken resistance in this 112 area turns first support. A strong breakout should hold and a quick move back below 111.5 would serve as a warning to traders. As far as the bigger uptrend is concerned, chartists can use the flag lows, the June trend line and a buffer to mark key support at 108. Investors should stay with the long-term uptrend as long as 108 holds. The indicator window shows the IWM:SPY ratio bouncing towards the October trend line this month. IWM underperformed SPY the last few months and a break above this trend line is needed to signal a return to relative strength in small-caps.
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Chart 2
SPY SURGES TO NEW HIGH WITH MOMENTUM BREAKOUT... Chart 3 shows the S&P 500 ETF (SPY) leading the market with a bounce off its rising 50-day moving average and a surge above the early December high. I showed this chart in the Market Message on December 13th as SPY approached a support zone. SPY got a bounce off the 50-day Wednesday and followed thru to new highs the last three days. With this bounce, chartists can add a little buffer and mark key support at 175. I usually add a buffer when marking support and resistance level for indices and ETFs because there are so many moving parts (stocks). The indicator window shows the Commodity Channel Index (CCI) dipping below -100 to become oversold for a few days and then a surging back into positive territory to trigger a bullish momentum signal. Momentum clearly favors the bulls as long as CCI remains positive.
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Chart 3
BREADTH INDICATORS SURGE AND ESTABLISH KEY SUPPORT... Broad market analysis requires a broad approach that examines several factors or indicators. In addition to basic chart analysis, I also use three breadth indicators to assess the broader market. These include the AD Line, AD Volume Line and Net New Highs for the S&P 1500. This is a great index for breadth indicators because it covers the S&P 500, S&P MidCap 400 and S&P SmallCap 600. First, note that two of the three indices recorded new highs last week, as did the S&P 1500. The S&P SmallCap 600 hit a new high intraday on Monday and is not that far behind. Returning to breadth, chart 4 shows the S&P 1500 AD Line ($SUPADP) moving above its early December high with a surge the last seven days. Even though the indicator remains below the late November high, this breakout keeps the indicator in bull mode and chartists can use the December low to mark support. As with indices and ETFs, I will add a buffer and mark a support zone based on this low. A decisive break below the early December low would reverse the overall uptrend in this key breadth indicator and argue for a broad correction in the stock market. Chart 5 shows the S&P 1500 AD Volume Line ($SUPUDP) with similar characteristics.
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Chart 4
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Chart 5
HIGH-LOW PERCENT SURGES BACK ABOVE 15%... The recent breakouts in the AD Line and AD Volume Line coincided with the breakout in the S&P 1500, but High-Low Percent actually triggered a bullish signal just before Wednesday's big surge. Chart 6 shows High-Low Percent for the S&P 1500 dipping into negative territory and then surging above 2% last Monday. As foreshadowed in the Market Message on December 13th, this signals that new highs are expanding again and this is bullish for stocks. Traders will now have to wait for the next pullback to the zero area for a signal. Overall, Net New Highs surged above 15% and the cumulative High-Low Line hit another new high. The trouble (correction) starts if/when the High-Low Line moves below its signal line and High-Low Percent dips below -2% This would show an expansion of new lows and signal a increase in selling pressure.
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Chart 6
XRT KEEPS UPTREND ALIVE WITH SHORT-TERM BREAKOUT... Despite a bullish environment for stocks overall, there are some individual concerns out there. In particular, chart 7 shows the Retail SPDR (XRT) lagging because it remains below its late November high. The S&P 500, on the other hand, hit a new high last week and XRT failed to confirm. The indicator window shows the StockCharts Technical Rank (SCTR) moving lower in early December and stalling just above 70. XRT is still one of the stronger ETFs overall, but its performance ranking has slipped and a break below 70 would show further slippage. On the price chart, XRT broke short-term resistance with a surge above 86. This is enough to forge a higher low and keep the bigger uptrend alive. Chartists can now base key support on the December low.
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Chart 7
SHANGHAI COMPOSITE LAGS AFTER SHARP DECLINE... Stocks in Europe rebounded with a sharp advance the last seven days and the Nikkei 225 is within spitting distance of its May high. The Shanghai Composite ($SSEC), however, failed to hold the November breakout and plunged the last two weeks. Chart 8 shows the index breaking out with a surge above 2200 and then giving it back with a sharp decline below 2100. The index edged higher on Monday and is now testing support from the early November low. The failed breakout is quite negative and puts the Shanghai Composite back in the bear camp. The indicator window shows the price relative moving to a new low for 2013 as China continues to underperform the US. Chart 9 shows weekly bars to highlight the extend of this breakout failure. It looked as if the index was turning the corner with this breakout at 2200, but the breakout has failed and chartists can now mark long-term resistance just below 2300.
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Chart 8
