SPY SUCCESSFULLY TESTS FIRST SUPPORT LEVEL -- XLI AND XLY BOUNCE OFF EARLY MARCH LOWS -- XLK LEADS MARKET HIGHER -- MSFT LEADS TECHS HIGHER -- INTEL EXTENDS CONSOLIDATION -- BIOTECH ISHARES BOUNCES OFF SUPPORT ZONE
SPY SUCCESSFULLY TESTS FIRST SUPPORT LEVEL... Link for today's video. The S&P 500 SPDR (SPY) fell sharply last week, but firmed on Friday and bounced off support this week. Chart 1 shows SPY breaking out to a new high with a gap in early March. This new high affirms the long-term uptrend and pullbacks are considered mere corrections within the bigger uptrend. Even though the early March gap did not hold, first support did as SPY surged back above 187 on Monday. The support zone around 184 now marks the first level to watch. A break here would argue for a deeper pullback that could retrace 50 to 62% of the prior advance. Note that a short-term support break would not affect the long-term uptrend.
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Chart 1
XLI AND XLY BOUNCE OFF EARLY MARCH LOWS... The Industrials SPDR (XLI) and the Consumer Discretionary SPDR (XLY) also bounced off their early March lows to establish short-term support levels. Chart 2 shows XLY falling to the early March low last week and then bouncing with a move back above 66 this week. As with SPY, the March lows now mark a minor support zone to watch for signs of a deeper correction. A break below last week's low would argue for a bigger retracement of the prior advance and we could then see a move to the 64 area (50-62% retracement). Chart 3 shows XLI with similar characteristics.
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Chart 2
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Chart 3
XLK LEADS MARKET HIGHER... Tech stocks caught a bid on Tuesday with the Technology SPDR (XLK) leading the market higher. Chart 4 shows XLK failing to hold the early March gap and falling below the 3-March low last week (barely). This minor support break did not last long as the bigger uptrend pulled trump on the short-term pullback. Chartists can now widen the support zone by extending it from 35.5 to 36. Overall, XLK forged a new high in early March and the breakout is largely holding. Chartists can entertain thoughts of a failed breakout if, and only if, XLK breaks below 35.50.
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Chart 4
MSFT LEADS TECHS HIGHER... Chart 5 shows Microsoft (MSFT) surging on reports that the company would unveil an Office app for the iPad. If you can't beat them, join them. News or no news, the stock has been trending higher since the wedge breakout in late January. In fact, Microsoft as outperformed Apple this year. Most recently, MSFT consolidated near resistance with a pennant. The stock broke pennant resistance today and broken resistance turns first support to watch on any throwback. The pennant lows mark key support in the 37-37.5 area.
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Chart 5
INTEL EXTENDS CONSOLIDATION... I featured Intel (INTC) on March 3rd as the stock declined from resistance in the 25 area. Chart 6 shows this decline stopping short of a support break as the stock bounced and extended the consolidation. INTC is getting a lift today and helping the technology sector, but remains short of a breakout. The pink lines show the Bollinger Bands at their narrowest spread in years. Volatility has seriously contracted and this suggests that a volatility expansion is in the cards. Of course, the Bollinger Bands do not provide clues on the next directional move. Chartists simply need to watch the consolidation boundaries for a breakout. A move above 25 would be bullish, while a move below 24.3 would be bearish. The indicator window shows volume drying up during the consolidation. Look for a surge in volume to confirm the directional move.
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Chart 6
BIOTECH ISHARES BOUNCES OFF SUPPORT ZONE... The Biotech iShares (IBB) led the market lower from late February to mid March, but the ETF may be finding its footing as a bullish continuation pattern forms. Chart 7 shows IBB within a clear uptrend over the last six months. After hitting a new high in late February, the ETF corrected with a falling flag the last few weeks. Notice how the trend line zone and broken resistance intersect to form a support zone in the 250-255 area. IBB is bouncing today and a break above the flag trend line would signal a continuation of the bigger uptrend.
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Chart 7
ENERGY SPDR FORMS BULLISH CONTINUATION PATTERN... Last week I highlighted weakness in Chevron (CVX) and ExxonMobil (XOM), as well as a pennant in the Energy SPDR (XLE). Big oil is getting a bounce today and this is a good time to revisit the patterns working on these charts. Chart 8 shows XLE breaking below pennant support last week and then surging right back above 87 this week. Such strength suggests that XLE may be poised to challenge resistance again. Overall, notice that an inverse head-and-shoulders is taking shape with neckline resistance just above 88. The right two thirds of the pattern looks like a cup-with-handle, which is also a bullish continuation pattern. Either way, a break above resistance forges a new high and confirms the underlying uptrend.
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Chart 8
COP, CVX AND XOM LEAD BIG ENERGY... XLE is full of big integrated energy companies with ExxonMobil and Chevron accounting for over 28% of the ETF. ConocoPhillips (COP), a smaller, but major, integrated oil company, is making a breakout move today with a surge above consolidation resistance. Chart 9 shows COP breaking the late November trend line in late February, consolidating in March and breaking out with a surge the last three days. Chart 10 shows *Chevron shrugging off last week's selling pressure and surging to flag resistance this week. Chart 11 shows ExxonMobil bouncing off support, but the stock has yet to fill the early March gap, which is bearish until proven otherwise. Look for a break above 96 to put XOM back on the bullish track.
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Chart 9
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Chart 10
