CONSUMER DISCRETIONARY SECTOR REMAINS THE WEAKEST LINK -- EW CONSUMER DISCRETIONARY ETF BOUNCES OFF TREND LINE -- RETAIL ETFS SURGE TO ESTABLISH KEY SUPPORT LEVELS -- RAILROAD INDEX CONSOLIDATES WITHIN UPTREND
CONSUMER DISCRETIONARY SECTOR REMAINS THE WEAKEST LINK... Link for today's video. Weakness in retailers and homebuilders weighed on the consumer discretionary sector and caused it to be the worst performing sector over the last three months. PerfChart 1 shows performance for the nine sectors since February 12th (three months). All twelve are up, but the Consumer Discretionary SPDR sports the smallest gain, followed by the HealthCare SPDR. Relative weakness in the most economically sensitive sector could pose a problem for the stock market as a whole. Even so, the S&P 500 is trading at a new high and the S&P 1500 is challenging its early April high. This is in part because the Industrials SPDR, the Materials SPDR, Energy SPDR, the Consumer Staples SPDR and the Equal-weight Finance ETF hit new highs this month. The Technology SPDR is on the verge of hitting a new high today. Note: today's video has a live demo on using PerfCharts.
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Chart 1
EW CONSUMER DISCRETIONARY ETF BOUNCES OFF TREND LINE... The consumer discretionary is still in an uptrend on the price chart, but struggling over the last few weeks and I am watching support levels closely. Chart 2 shows the Consumer Discretionary SPDR (XLY) breaking above the upper trend line of a small triangle this week. Overall, the trend on this chart is up because XLY recorded a new high in early March and held above its early February low in mid April. The cup remains half full and the triangle breakout is positive, but the ETF is hitting resistance from the prior highs in the 65 area. Failure to hold the breakout and a move below the 62-63 support zone would be most negative for XLY - and the market. The indicator window shows the AD Volume Line for XLY ($XLYADP) flattening for the last two months and I am watching support from the March-April low.
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Chart 2
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Chart 3
The price action in the Equal-Weight Consumer Discretionary ETF (RCD) looks a little more promising. XLY is a market-cap weighted ETF. RCD, on the other hand, treats all stocks equally and provides a better representation for the sector as a whole. Chart 3 shows RCD holding the late June trend line and working its way higher the last few weeks. The concern here is that this three week rise evolves into a rising flag, which is a bearish continuation pattern. It is rising for now and key support is set at 76. The indicator window shows the XLY AD Line ($XLYADP) stalling over the last two months, but remaining very close to its highs and in an uptrend overall.
RETAIL ETFS SURGE TO ESTABLISH KEY SUPPORT LEVELS... The Commerce Department reported a .1% rise in April retail sales and revised the March number higher to 1.5%. Clearly, the 1.5% gain in March is positive for the economy, and the .1% rise in April is a let down. Retail stocks surged off support over the prior two days and then stalled after today's report. Chart 4 shows the Retail SPDR (XRT) bouncing off the 81 area twice in the last five weeks. These two bounces establish support and the line in the sand for this key industry group. A decline back below this support zone would be most negative for XRT and the consumer discretionary sector. Overall, a large triangle is taking shape as XRT formed a lower high in March and has a higher low working in April-May. Resolution of this pattern could have long-term ramifications for the broader market. Chart 5 shows the MarketVectors Retail ETF (RTH) finding support near the 62% retracement over the last five weeks. A break above the late April high would be bullish.
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Chart 4
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Chart 5
RAILROAD INDEX BREAKS TO NEW HIGH... Railroad stocks may not be as exciting as momentum names, but most are in uptrends and trading near 52-week highs. Chart 6 shows the DJ US Railroad Index ($DJUSRR) within a clear uptrend over the last eight months. After a consolidation in January-February, the surged above 1200 in March and recorded a 52-week high in April. Another consolidation took shape since mid March and today's break above resistance signals another continuation higher. Those interested in patterns might be able to see a diamond or even an inverse head-and-shoulders taking shape. Regardless of the pattern, the break to new highs is clearly bullish and this is one of the strongest industry groups in the market right now.
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Chart 6
ISOLATING RAILROAD STOCKS IN THE SECTOR SUMMARY... Using the Sector Summary, I was able to find the components of DJ US Railroad Index (S&P Sector >> Industrial Sector >> Railroad). There are eleven symbols listed, but I weeded out the duplicates (KSU/P and GWRU) as well as the thinly traded (PRRR). Chart 7 shows a screen shot from this industrials sector.
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Chart 7
I then set up a ChartList with these symbols and viewed them as six-month CandleGlance charts to get a quick overview. Canadian National Rail (CNI) and Canadian Pacific (HP) are the strongest because both broke to new highs this month. I suspect these two are benefitting from the transport of tar sands oil. CSX Corp (CSX) broke out with a big surge over the last three days and Union Pacific (UNP) is close to a new high after surging above 190 on Monday. Note that today's video. shows a live demo on using the Sector Summary and creating a ChartList.
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Chart 8
KANSAS CITY SOUTHERN SURGES TO TRIANGLE TREND LINE... Kansas City Southern (KSU) has underperformed its peers and the broader market over the last six months, but the chart is starting to look interesting because the stock surged to triangle resistance with a big move. Chart 9 shows KSU plunging in mid January and mid February. The stock rebounded in March and then consolidated with a triangle into May. Overall, the stock has pretty much consolidated in the 100 area since the second week of March. Monday's gap and surge provide first signs that this consolidation is about to end. A breakout would signal a continuation of the February-April advance and target a move to the 110-115 area. The indicator window shows the price relative hitting a low in late February and holding above this low here in May. Perhaps KSU is poised for a period of relative strength. Chart 10 shows Genesee & Wyoming (GWR) surging in February and then retracing 62% with a pullback into mid April.
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Chart 9
