-- SMALL-CAPS LEAD, NEW HIGH PARADE, FINANCE LAGS, BAC AND MS, XLE HITS RESISTANCE, XOM, CVX AND SLB, PALLADIUM PERKS UP, GOLD HITS FIB LEVEL, GDX HOLDS BREAK --
LARGE-CAPS AND SMALL-CAPS LEAD FEBRUARY CHARGE... Link for today's video. Even though the stock market is not firing on all cylinders, the majority of cylinders are firing bullish and this is enough to support an uptrend in the broad indices. February may be a short month, but it certainly was a bullish month for stocks. The Nasdaq 100 is leading the pack with a 7+ percent gain. The S&P Small-Cap 600 and Russell 2000 perked up this past week and are now up slightly more than the S&P 500. PerfChart 1 shows February performance for nine stock indices. Note that today's price action is not included on this chart. Overall, the gains are relatively even and this is testament to the broadness of the February advance.
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Chart 1
NEW HIGH PARADE... There were lots of new 52-week highs again this week. In the broad market category, the Nasdaq 100 ETF (QQQ), Equal-Weight S&P 500 ETF (RSP) and Russell 2000 iShares (IWM) hit new highs. Among the sectors, ETFs from consumer discretionary, technology, industrials and healthcare hit new highs. Among the industry groups, ETFs associated with homebuilding, retail, internet, semiconductor, software, biotech and pharmaceuticals hit new highs. Below is a list with the symbols from each group. Note that this is not a complete list of new highs. It sure is a big list though.
Major index ETFs: DIA, QQQ, IWM, ITOT, RSP, MDY, IJR, SPY.
Sector ETFs: XLY, XLK, XLI, XLV, RCD, RHS, RYH, RGI, RTM, RYT, PSCD, PSCH, PSCI, PSCT
Industry Group ETFs: ITB, XHB, PEJ, XRT, RTH, FDN, IGN, SKYY,
XSD, IGV, PPA, MOO, XBI, IBB, IHF, IJI, PJP
FINANCE SECTOR CONTINUES TO LAG... The new highs tell us where the market leadership is. Some groups and stocks, however, did not score new highs this month and these are the laggards. In particular, chart 2 shows the Finance SPDR (XLF) struggling a bit and remaining below its late December high. I still think the cup is half full (bullish) for XLF, but I am watching the support zone around 24 closely. A close below 23.9 would break the lower line of the Raff Regression Channel and reverse the current upswing. The indicator window confirms relative weakness because the XLF:SPY ratio is near its summer lows.
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Chart 2
BANK OF AMERICA AND MORGAN STANLEY ... Chart 3 shows Bank of America (BAC) breaking down in January and hitting resistance near broken support in mid February. BAC and other banks surged in early February and BAC even gapped up on 6-Feb. This gap, however, did not hold as the stock fell below 16 this week. The cup is clearly half empty (bearish) for BAC. In addition to the failure at resistance, the stock shows relative weakness because the price relative (BAC:SPY ratio) broke down in January and turned down over the last two weeks.
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Chart 3
Chart 4 shows Morgan Stanley (MS) surging in early February and stalling near the 62% retracement over the last two weeks. The stock is underperforming the market because it remains well below its prior high. We can also see relative weakness in the price relative (MS:SPY ratio). MS is a tough call right now so I am watching two levels for the next directional clue. First, a move below 35.5 would negate the early February breakout and affirm a lower high. This would be bearish. As long as MS consolidates above 35.5, the small consolidation could be a bull flag and a break above 37 would open the door to new highs.
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Chart 4
XLE DOES A DOUBLE THROWBACK... Chart 5 shows the Energy SPDR (XLE) with a big head-and-shoulders pattern and a neckline break in late November. Broken support then turned into resistance and held in December as the ETF fell back to the low 70s in January. XLE bounced in February and again challenged broken resistance this month. This second throwback bounce appears to be failing as the ETF fell back the last two weeks. At this point, I think resistance is holding and the outlook is bearish. It is possible that the December-January lows formed a small double bottom, but I would not consider this confirmed unless XLE breaks above 82.50. The indicator window shows the XLE:SPY ratio flattening out the last three months as XLE performs inline with the broader market. A break above .40 would signal relative strength in XLE.
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Chart 5
EXXON, CHEVRON AND SCHLUMBERGER... An ETF is only as good, or bad, as the sum of its parts. As the XLE chart above shows, ExxonMobil (XOM), Chevron (CVX) and Schlumberger (SLB) account for around 36% of XLE. Keep in mind that the nine sector SPDRs are weighted by market cap and the top ten components often account for over 50% of the ETF. These three top stocks hit resistance in mid February and fell the last two weeks. Chart 6 shows XOM with a large descending triangle taking shape since October. XOM fell from its resistance zone the last two weeks and looks set to test support. A break below the October-January lows would confirm the pattern and target a move to the 76 area. The height of the pattern is subtracted from the break for a downside target. Note that this pattern forms the right shoulder of a large head-and-shoulders pattern that extends back to November 2013.
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Chart 6
Chart 7 shows CVX reversing at resistance with an island reversal. Chart 8 shows SLB hitting resistance in the upper 80s and turning down the last two weeks. All three of these stocks need to break above their resistance zones before thinking bullish on XLE.
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Chart 7
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Chart 8
PALLADIUM CATCHES A BID... Palladium is perking up with a surge and breakout this week. Chart 9 shows March Palladium Futures (^PAH15) falling sharply in September, firming in October and forming a higher low in January. The green trend line reflects a slight uptrend by connecting the October closing low with the January closing low. This industrial metal surged above 800 this week and broke above a resistance zone. Note that palladium is used in catalytic converters, auto stocks are performing quite well and oil is down sharply over the last six months. These factors may affect demand. Sorry to mention the fundamentals. Just keep an eye on the chart. A move back below 790 would call for a reassessment and a break below 760 would be bearish. Chart 10 shows the Palladium ETF (PALL) holding support in the 74-75 area and breaking above its late January high this week. MACD moved into positive territory and to its highest level of the year.
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Chart 9
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Chart 10
GOLD HITS KEY FIBONACCI LEVEL... Even though I think the long-term trend for gold is down, the six month chart shows an interesting setup that could turn out bullish. Chart 11 shows April Gold Futures (^GCJ15) bottoming in early November, forming a higher low in late December and breaking above the October-December highs in January. This was pretty strong price action, but gold peaked near 1300 and fell all the way back to 1200 this month. Gold is now at an interesting juncture because it retraced 62% of the prior advance. Thus, it is possible that this is a correction after the surge from early November to mid January. I am generally bearish on gold, but we have to keep an open mind and look for evidence that will prove our position otherwise. The swing since late January is still down and I am using the Raff Regression Channel to mark resistance at 1220-1230. A move above this level would provide the first clue that the six week slide is reversing.
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Chart 11
Chart 12 shows the Gold SPDR (GLD) with the two longest volume-by-price bars marking a potential support zone in the 115.117.5 area. The Raff Channel and a buffer mark downswing resistance in the 117-118 area. Chart 13 shows the Gold Miners ETF (GDX) finding support near broken resistance and bouncing above 21 today. A break above 22 would reverse the four week downswing.
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Chart 12
