FRIDAY'S BOUNCE KEEPS STOCK INDEXES ABOVE 200-DAY LINES, BUT ON LIGHT VOLUME -- GREEK STOCK ETF RALLIES ON HOPES FOR A COMPROMISE -- GERMAN AND FRENCH STOCKS ALSO BOUNCE OFF 200-DAY LINES -- AS DOES A VERY OVERSOLD SHANGHAI MARKET
DOW AND S&P 500 HOLD 200-DAY LINES... After a wild week, stocks closed high enough on Friday to hold their 200-day averages. Chart 1 shows the Dow Industrials climbing 211 points on Friday to end above its 200-day line. Chart 2 shows the S&P 500 doing the same. The only problem was that the price gains saw the lightest trading of the week. That doesn't show much conviction. The NYSE Composite Index in Chart 3 also bounced but remains below its 200-day line. As I suggested on Thursday, the NYSE needs to clear that resistance line, and its June low at 10900, to improve its short-term picture. Chart 3 shows the 14-day RSI for the NYSE bouncing from oversold territory near 30, but its MACD lines remain in negative territory. Short-term oversold conditions no doubt contributed to Friday's bounce. All three stock indexes found support at their March low, but remain well below their 50-day lines. It remains to be seen if stocks can build on those gains next week. A lot will depend on whether or not stocks in China and Europe can hold onto to their late gains.
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Chart 1
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Chart 2
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Chart 3
GREEK ETF ALSO JUMPS ON FRIDAY ... A big part of Friday's stock bounce came from renewed hope for a Greek settlement. Although Greek stocks were closed, the Global X FTSE Greek ETF (GREK) jumped 9% on Friday in heavy trading. The GREK still has a long ways to go, however, to signal an upturn. A good start would be for it to clear its 50-day line and its June high. Another potentially encouraging sign comes from the weekly bars in Chart 5 which the GREK also testing potential chart support at is 2012 low. That Greek bounce gave a big boost to eurozone stocks
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Chart 4
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Chart 5
GERMANY AND FRANCE BOUNCE OFF THEIR 200-DAY LINES... U.S. stock indexes weren't the only ones to bounce of their 200-day lines. German and French stocks did the same. Chart 6 shows the German DAX Index ending the week just shy of its 50-day line. But it will have to clear that blue line, and the falling resistance line drawn over its April, May, and June highs to improve its short-term trend. Chart 7 shows the French CAC Index in a similar situation. Whether or not they can turn their short-term trends back up again will no doubt depend on what happens with Greece. That may also help determine what U.S. stocks do next week.
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Chart 6
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Chart 7
SHANGHAI 200-DAY LINE ALSO HOLDS... This was a good week for 200-day lines. Add China to the list of stock indexes to bounce off that important long-term support line. The daily bars in Chart 8 show the Shanghai Stock Index bouncing off its 200-day line on Thursday and Friday. It also helpled that the index was in a deeply oversold condition as shown by its 14-day RSI line (below chart). In addition, the SSEC had retraced slightly more than 50% of its spectacular advance from last year. The weekly bars in Chart 9 also show the Shanghai market finding chart support along its 2009 peak near 3500. Previous peaks usually act as support. The big question now is whether Chinese stocks can build on that gain. That may also determine the direction of U.S. stocks next week.
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Chart 8
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Chart 9
NYSE PERCENT OF STOCKS ABOVE 200-DAY MOVING AVERAGE IMPROVES... Speaking of 200-day moving averages, the percent of NYSE stocks above that key support level showed some improvement this week, but remain low. The red line in Chart 10 shows that % line falling below 40% earlier in the week to the lowest level since last October. That earlier market correction took the red line down to 30% before turning back up again. The % line jumped to 45% this week for a 5% bounce. That's encouraging, but I'd like to see it break its falling red trendline and climb back above its June peak at 55% to convince me that it has bottomed. The negative divergence by the % line and the NYSE Composite remains a concern for the health of the market. That divergence needs to be corrected by the red line turning back up gain in more convincing fashion.
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Chart 10
TECHNOLOGY SPDR TESTS 200-DAY AVERAGE -- SOXX FAILS TEST... Of the nine sector SPDRS I follow, four are safely over their 200-day averages (cyclicals, financials, healthcare, and staples). Four are below their 200-day lines (energy, materials, industrials, and utilities). The tie-breaker may lie with technology. Chart 11 shows the Technology SPDR (XLK) testing its 200-day average and chart support at its March low. So far that support is holding. That's not the case with chip stocks. Chart 12 shows Semiconductor iShares (SOXX) plunging below its 200-day line and its March low. Given the importance of that group to the technology sector, that's cause for concern. As long as the XLK stays over its 200-day line, the majority of the nine sectors will still be in uptrends. A downside violation of its 200-day line would put the majority of sectors in downtrends. [Telecom, often considered a tenth sector, is also below its 200-day line. That makes five up and five down -- a stalemate. That makes technology's ability to hold its 200-day line all the more important].
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Chart 11
