CONSUMER DISCRETIONARY SECTOR WEIGHS ON STOCKS -- WATCHING THE UPSWINGS IN XRT AND ITB -- SMALL-CAP TECH ETF HITS NEW HIGH -- LIGHT CRUDE, BRENT AND GASOLINE BREAK DOWN -- CONSOLIDATIONS END FOR ENERGY-RELATED ETFS
CONSUMER DISCRETIONARY SECTOR WEIGHS ON STOCKS... Link for today's video. The consumer discretionary led the market in 2013, but has lagged the market this year and the price relative just broke to a new low. Chart 1 shows the Consumer Discretionary SPDR (XLY) peaking just below the early September high and moving sharply lower on Tuesday. After a 10+ percent advance in the second half of October, the ETF is entitled to a pullback of sorts. But how far? I am prepared to ignore last week's spike to 65 and mark support in the 65.5-66 area. A close below this level would put the ETF back below the 200-day and be quite negative. The indicator window shows the price relative (XLY:SPY ratio) moving to a new low this week. The means XLY shows relative weakness and is still a sector to be avoided.
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Chart 1
WATCHING THE UPSWINGS IN XRT AND ITB... Retail and housing feature prominently in the consumer discretionary sector and I will be watching related ETFs for clues on this key sector. Chart 2 shows the Retail SPDR (XRT) surging in the second half of October and reversing just below the September high the last three days. The ETF is entitled to a pullback after this big move and I will mark support in the 86 area. A trend line does not work well because the advance is quite steep. Instead, I opted for the Raff Regression Channel to define the upswing. The lower trend line ends just below 86 and a break below this support zone would reverse the upswing. The indicator window shows the price relative forming a lower high as XRT underperforms SPY the last few months. Chart 3 shows the Home Construction iShares (ITB) hitting resistance in the 24.25 area over the last few weeks and I will mark upswing support in the 23.5-23.75 area.
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Chart 2
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Chart 3
SMALL-CAP TECH ETF HITS NEW HIGH... Even though healthcare, staples and utilities are leading the small-cap sectors, the money flowing into the stock market is are not all defensive. Note that the SmallCap Technology ETF (PSCT) and the SmallCap Financials ETF (PSCF) broke out last week and show relative strength. This means five of the nine small-cap sectors broke out recently or are trading at new highs. Things can be all that bad in small-cap land when the majority of sectors are this strong. Chart 4 shows PSCT bouncing off support in mid October and surging above the June high for a fresh 52-week high. The only negative here is that PSCT is short-term overbought after a 15% surge the last few weeks. Chart 5 shows the PSCF breaking above its 2014 highs with a surge above 40. Even though the ETF remains below the spike high, the resistance breakout is clear and it is bullish.
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Chart 4
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Chart 5
LIGHT CRUDE, BRENT AND GASOLINE BREAK DOWN... Chart 6 shows the USO Oil Fund (USO) breaking support from a descending triangle to signal a continuation of the current downtrend. The pattern is quite small with a height that is less than 2 points, but the break down is clear and bearish. Chartists can mark resistance at the pattern highs. The indicator window shows Light Crude Futures (^CLZ14) breaking down with a sharp decline below 80. Chart 7 shows the US Brent Oil ETF (BNO) breaking pennant/wedge support with a sharp decline. Chartists can mark resistance at 35. Chart 8 shows the Gasoline ETF ($GASO) breaking wedge support with a decline below the mid October low.
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Chart 6
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Chart 7
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Chart 8
CONSOLIDATIONS END FOR ENERGY-RELATED ETFS... The Oil & Gas Equip & Services SPDR (XES) and the Oil & Gas E&P SPDR (XOP) firmed in the latter part of October, but selling pressure kicked in this month and they broke support to continue their overall downtrends. Note that both became oversold after sharp declines and consolidated to alleviate these oversold conditions. Chart 9 shows XES breaking the lower trend line of a three week pennant formation and chartists can mark resistance with the late October highs. Chart 10 show XOP breaking the wedge trend line and chartists can mark resistance in the 62.50 area. The indicator windows show the price relatives moving to new lows as these two continue to underperform.
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Chart 9
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Chart 10
TELECOM SERVICES SECTOR MOVES INTO IMPROVING QUADRANT... Chart 11 shows a Relative Rotation Graph (RRG) with nine of the ten sectors of the S&P 500. I left out the S&P Energy Sector ($SPEN) because it is seriously underperforming and creates a lot of extra red space in the southwestern corner. As the chart shows, healthcare, utilities, finance and consumer staples are the strongest sectors. They are all green and in the leading quadrant. My eyes are on the S&P Telecommunication Services Sector ($SPTS) and the S&P Industrials Sector ($SPI) because they moved into the improving quadrant over the last few weeks (black arrows). In fact, $SPTS moved into the blue quadrant this past week and could be heading to the leading quadrant over the next few weeks. In theory, the sectors rotate in a clockwise manner. Notice how S&P Utilities Sector ($SPU) and S&P Consumer Staples Sector ($SPST) moved from the lagging quadrant and into the leading quadrant via the improving quadrant. Before leaving this chart, there is some concern with the S&P Consumer Discretionary Sector ($SPCC) because it recently moved from the improving quadrant to the lagging quadrant.
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Chart 11
VERIZON BREAKS A WEDGE TREND LINE ... The S&P Telecommunication Services Sector Index has just five components and two dominate this market-cap weighted index: AT&T ($180 billion) and Verizon ($209 billion). The next two charts show UNADJUSTED data for AT&T (_T) and Verizon (_VZ). This means dividends and payouts have not been added back into the price data. Chartists can view unadjusted data by putting an underscore before the symbol (_VZ). Chart 12 shows Verizon breaking out of a big triangle in May and then consolidating the rest of the year. A falling wedge formed the last few months and the stock broke above the upper trend line last week. There is a lot of support in the 48-49 area. The indicator window shows the MACD Histogram turning positive this week.
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Chart 12
AT&T REVERSES AT KEY RETRACEMENT, BUT STILL LAGS... Chart 13 shows AT&T (unadjusted) reversing near the Fibonacci cluster zone with a long white candlestick last week. Notice how the stock formed a hammer and then a large spinning top before this long white candlestick. I am using a Fibonacci cluster zone because there are two peaks that could be used for the Fibonacci Retracements Tool. Instead of choosing one, I just used both and looked for overlaps. Notice the two 61.8% retracements overlap in the 33.8-34 area. Even though AT&T and Verizon have similar business models, it is clear that Verizon is the stronger of the two stocks. AT&T has underperformed Verizon since early 2013 on a long-term basis and since May on a medium-term basis.
