DOW BREAKS THROUGH RESISTANCE -- SO DO MIDCAP AND SMALL CAPS -- S&P 500 SHOULD BE NEXT -- ENERGY SHARES ARE AT A LONG-TERM SUPPORT LEVEL AND MAY BE BOTTOMING -- THAT WOULD HINT AT A BOTTOM IN OIL
DOW EXCEEDS CHART RESISTANCE... A 211 point gain in the Dow Industrials was enough to push it through initial chart resistance at its mid-December. That's a strong sign that the sidways price pattern in effect since early December is being resolved on the upside. The Dow isn't the only stock index breaking through resistance. So are mid and small cap stocks.
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Chart 1
MID AND SMALL CAPS ACHIEVE BULLISH BREAKOUTS... It's normally a good sign when smaller stocks are leading large caps higher. And they're certainly doing that. Chart 2 shows the S&P 400 Mid Cap Index closing at a new record high today. Chart 3 shows the S&P 600 Small Cap Index rising above two overhead peaks formed during January. A test of its December high appears imminent. Its relative strength line (above chart 3) has been doing better than large caps since October and is also on the verge of a new high. That's a good sign that large caps are turning up as well. Chart 4 shows the S&P 500 Large Cap Index ending just shy of its January intra-day peak at 2064. A move that resistance barrier now appears likely.
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Chart 2
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Chart 3
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Chart 4
ENERGY STOCKS MAY BE BOTTOMING... A big part of this week's renewed optimism is the fact that energy stocks are finally showing signs of a potential bottom. They've actually been the week's strongest sector. The daily bars in Chart 5 show the Energy Sector SPDR (XLE) trading above its 50-day average for the third staight day. It bounced off it today. To signal a more convincing bottom, however, the XLE needs to clear its late December peak (8100) and the red resistance line drawn over its September/November peaks. Its RSI and MACD lines are also showing improvement. The weekly bars in Chart 6 also show the XLE bouncing off a rising support line drawn under its 2009/2011 lows. That would be a logical spot for it to find a bottom. In addition, the 14-week RSI line (top of Chart 6) is stablizing just above oversold territory near 30. A bottom in energy shares would hint at a bottom in crude oil. Crude rose $2.38 (4.9%) to end at $50.83. A weaker dollar helped.
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Chart 5
