SPY FOLLOWS SPINNING TOP WITH GAP DOWN -- THREE SUPPORTS FOR THREE KEY SECTORS -- INTC WEIGHS ON SEMICONDUCTOR ETF -- GOLD SURGES TO NEW HIGH FOR 2014 -- GERMAN DAX FAILS TO CONFIRM OTHER EU INDICES
SPY FOLLOWS SPINNING TOP WITH GAP DOWN... Link for today's video. Last week I wrote about Monday's shooting star pattern in the S&P 500 SPDR (SPY). This bearish candlestick pattern was never confirmed because the ETF closed above the shooting star high on Friday (barely). Despite this new high, chart 1 shows SPY finishing the week indecisive with a spinning top. These form with small bodies and relatively equal shadows, which mark the high and low. The small body means there was little change from open to close. The long, and equal, shadows define the intraday range. Prices moved up and down after the open and then closed near the open. In other words, there was a lot of price movement, but not much to show for it in the way of a gain or loss. Indecision is often the first step to a short-term reversal and SPY gapped down on today's open. Should a long black candlestick form today, the three day pattern would be a bearish evening star. For now, the a down gap and support break at 184 would reverse the short-term uptrend and argue for a retracement of the February advance or perhaps even a bigger support test in the 172-176 area. The indicator window shows the momentum thrusts in StochRSI. Surges above .80 mark an upward thrust in momentum and plunges below .20 marking a downward thrust. Chart 2 shows the Equal-Weight S&P 500 ETF (RSP) with similar characteristics.
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Chart 1
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Chart 2
THREE SUPPORTS FOR THREE KEY SECTORS... Stocks came under selling pressure as the market reacted to developments in Ukraine. While I am pretty much on board with this excuse, it is worth noting that stocks were quite extended at the end of February. SPY was up 4.55% for the month, while QQQ gained 5.15% and IWM advanced 4.78%. Stocks were already ripe for some sort of corrective period after these sizable gains. At this point, I am watching short-term support levels for three key sectors to see if a correction is actually going to unfold. In addition to the short-term support levels shown for SPY and RSP above, chartists can watch the late February lows for the Finance SPDR (XLF), Technology SPDR (XLK) and Industrials SPDR (XLI). Chart 3 shows XLF stalling in the 21.50 area for three weeks. A move below 21.25 would break support and reverse the short-term uptrend. Chart 4 shows XLI with short-term support in the 51 area. Chart 5 shows XLK testing short-term support with a rather sharp decline on Monday. Also notice that XLK has underperformed SPY for two weeks. Support breaks in two of these three would put the market in correction mode (short-term downtrend).
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Chart 3
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Chart 4
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Chart 5
INTC WEIGHS ON SEMICONDUCTOR ETF ... The semiconductor group was quite strong in February with the Semiconductor SPDR (XSD) surging 9.8% and the MarketVectors Semiconductor ETF (SMH) advancing 6.02%. Notice that XSD outperformed SMH with a bigger gain. Before investing or trading in an ETF, it is important to know the key components and the general make-up of the ETF. The industry group SPDRs, such as KRE and XSD, tend to be broad-based ETFs with several dozen stocks of relatively equal weightings. For example, the top ten holdings in XSD account for just over 25% of the ETF. Chart 6 shows XSD surging above 66 and hitting a new high last week. The ETF became quite overextended and ended the week with small indecisive candlesticks. Today's sharp decline could be the start of a correction that may retrace a portion of the February surge. Broken resistance and the 50-62% retracement zone can be used to mark first support.
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Chart 6
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Chart 7
In contrast to XSD, the top ten components for the MarketVectors Semiconductor ETF (SMH) account for over 68% of the ETF. In fact, notice that the top five account for almost 50% of the ETF and Intel accounts for over 19%. Chart 7 shows SMH surging above its January high and then consolidating the last six days. Broken resistance and last week's lows mark first support at 43, a break of which would reverse the short-term uptrend. The indicator window shows SMH relative to XSD. This price relative peaked in late October and fell steadily the last three months as SMH underperformed XSD. Chart 8 shows Intel (INTC) with a big reversal and break down in January. The stock rebounded in February, but hit resistance near broken support and the 50% retracement. The lows of the last two weeks mark support and a break below support would signal a continuation of the January decline.
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Chart 8
GOLD SURGES TO NEW HIGH FOR 2014... The markets were rattled with the developments in Ukraine over the past weekend and gold surged around 2% on Monday. Chart 9 shows weekly prices for Spot Gold ($GOLD), which is currently trading around 1350. Gold broke the trend line zone with the surge above 1300 and is currently trading in the next resistance zone around 1350. A break above this resistance zone would be quite positive for bullion. The indicator window shows 14-week RSI breaking above 50 for the first time since late 2012.
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Chart 9
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Chart 10
Chart 10 focuses on the two month advance in the Gold SPDR (GLD). With GLD trading near 130, it has retraced just over 62% of the prior decline. Even though the 62% area could mark a reversal zone, the trend since early January is clearly up. The trend line zone and late February lows combine to mark support in the 126-127 area. The indicator window shows the Commodity Channel Index (CCI) moving into positive territory in early January and remaining largely positive during this advance. In a separate, but related, comment, the Russia-Ukraine situation could simply turn into a long stalemate, just as in Georgia and Moldova. Russia already has a naval base and big presence in the Crimea. It is not like Russia moved in and took over from Ukraine. Russia is simply reinforcing an existing position. Europe is not in a position to sanction Russia, the US will not act militarily and Ukraine cannot act alone. In short, Putin can do as he wants with Crimea, and there is not much anyone can do about it. I do not see this situation deteriorating unless Putin makes a grab for other parts of Ukraine.
GERMAN DAX FAILS TO CONFIRM OTHER EU INDICES... European shares were hit quite hard on the heels of the situation in Ukraine. Compared to the US, Europe has a lot more invested in its relations with Russia. In particular, Europeans important energy from Russia and are heavily dependent on natural gas supplies flowing through Ukraine. Even though European stocks were hit hard on Monday, it is worth noting that German stocks were lagging even before today's decline. Chart 11 shows the DJ Germany Index ($DEDOW) falling over 3% on Monday. This suggests that Germany perhaps has the most as stake. Notice that the index did not exceed its January high and formed a lower high. The indicator window shows the German DAX Index ($DAX) failing to take out its January high. Chart 12 shows DJ France Index ($FRDOW) falling around 2.5%, but notice that the index exceeded its January high. Chart 13 shows the DJ UK Index ($GBDOW) edging above its January high and then falling around 1.5% on Monday. This might be enough to reverse the short-term uptrend, but the medium-term trend is clearly up with a series of rising peaks and rising troughs.
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Chart 11
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Chart 12
