INTERNET ETF CONSOLIDATES AT MOMENT-OF-TRUTH -- GOOGLE TESTS SUPPORT AS YAHOO STALLS AT RESISTANCE -- A SHIFT IN SENTIMENT TOWARDS UTILITIES -- THREE UTILITIES ETFS BREAK SUPPORT -- OIL BREAKS LONG-TERM SUPPORT
INTERNET ETF CONSOLIDATES AT MOMENT-OF-TRUTH ... Chart 1 shows the Internet ETF (FDN) advancing to the 62% retracement and consolidating with a triangle. This is a make-or-break level for the ETF. A triangle after an advance is typically a bullish continuation pattern. As such, a break above the upper trend line would signal a continuation of the May-June advance and target a challenge to the March highs. Until there is an upside breakout, there is a danger that the ETF ultimately fails at the 62% retracement and breaks support at 58. Such a move would reverse the three month uptrend and signal a continuation of the March-May decline. This, in turn, would target a test of the May low and possibly even a break.
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Chart 1
The indicator window shows Aroon Up getting a jump on Aroon Down with a break above 50. Notice how the indicators declined in parallel fashion and moved below 30. This is how the Aroons act during a consolidation. The bullish Aroon cross is the first sign that FDN will break to the upside. This signal would fail if Aroon Down surges back above Aroon Up and breaks 50.
GOOGLE TESTS SUPPORT AS YAHOO STALLS AT RESISTANCE... Chart 2 shows six of the top ten components for the Internet ETF. At present, only one of the six is in a downtrend. Amazon broke the May trend line with a massive gap and this gap is holding. Ebay is in a rather tight uptrend the last six weeks and shows some relative strength. Facebook is in an uptrend, but pulling back after becoming overbought in late July. Google fell back over the last two weeks and is testing support from the July lows. PriceLine broke out with a surge on Monday and remains above the rising green trend line. Yahoo is trading flat as it consolidates near resistance. Break downs in two of the last five would be negative for the Internet ETF.
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Chart 2
A SHIFT IN SENTIMENT TOWARDS UTILITIES ... The Utilities SPDR (XLU) has come under considerable selling pressure the last five weeks. The sector is normally a defensive sector that holds up well when the broader market is weak. PerfChart 3 shows performance for the nine sector SPDRs since June 30th. The S&P 500 SPDR (SPY) is down 1.9% and XLU is down a whopping 8.07% (purple). XLU is down more than four times the amount of SPY and by far the weakest sector over this period. There has clearly been a shift in sentiment towards this sector because utilities came under more selling pressure than the overall market. Elsewhere, note that the Industrials SPDR (XLI) and the Energy SPDR (XLE) are also showing relative weakness during this timeframe. PerfChart 4 shows the equal-weight sectors with similar results.
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Chart 3
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Chart 4
THREE UTILITIES ETFS BREAK SUPPORT ... Chart 5 shows the Utilities SPDR hitting a new high in late June and then breaking below the May low. This is a pretty remarkable about face. There are three steps to this trend reversal, which I would characterize as medium-term. First, XLU failed to hold the June breakout and new high. Second, XLU consolidated and then broke consolidation support, which was short-term bearish. Third, XLU exceed the May low and forged a lower low. Short-term, the ETF is getting oversold after an 8% decline and we could see an oversold bounce. I would, however, consider this just an oversold bounce within a bigger downtrend. The indicator window shows the percentage of stocks in the utilities sector that are above the 50-day EMA. None of the stocks is above its 50-day EMA. This indicates broad-based selling pressure within the sector. Chart 6 shows the MarketVectors Nuclear Energy ETF (NLR) breaking the October trend line and exceeding its May low. Chart 7 shows the Water Resources ETF (PHO) breaking double top support with a sharp decline last week.
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Chart 5
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Chart 6
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Chart 7
OIL BREAKS LONG-TERM SUPPORT... A downtrend is developing in Spot Light Crude after breaking wedge support with a sharp decline over the last few weeks. Chart 8 shows Spot Light Crude ($WTIC) moving higher from January to July, but peaking well below the 2013 high and turning lower. Notice that a rising wedge formed and the wedge break clearly reverses the uptrend. Trends in Spot Light Crude have been relatively short over the last three years. Notice that there have been eight 15 percent moves since September 2011 - almost one per year. The pink line is the zigzag indicator set at 15%. This indicator filters out moves that are less than 15%. Returning to the chart, I would simply abide by the wedge break and remain bearish of crude until there is evidence to the contrary. The prior lows mark the next support zone to watch in the low 90s.
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Chart 8
ENERGY SPDR HOLDS SHORT-TERM SUPPORT BREAK... Chart 9 shows the Energy SPDR (XLE) hitting a new high in late June, stalling in July and then breaking short-term support. The long-term trend is still up, but the short-term trend is down and it looks like some sort of correction is underway. XLE is holding up better than the other energy related ETFs, but it is still down more than the S&P 500. PerfChart 10 shows XLE relative to the Oil & Gas Equip & Services SPDR (XES), Oil Service ETF (OIH) and Oil & Gas E&P SPDR (XOP). Notice that XLE is down more than twice SPY. XES and XOP are showing some serious relative weakness with double digit declines.
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Chart 9
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Chart 10
Chart 11 shows the six top components for the Energy SPDR. Notice that all six broke their mid-July lows over the last few days.
