STOCKS TRY TO STABILIZE WITH OIL -- SHORT-TERM TREND REMAINS NEUTRAL -- BANKS ALSO BOUNCE WITH OIL IN AFTERNOON TRADING -- KEEPING SHORT-TERM BUY SIGNALS IN PERSPECTIVE
SHORT-TERM TREND STILL UNCERTAIN... Stocks opened lower with oil today, but are trying to stabilize with the commodity in afternoon trading. Chart 1, however, shows a somewhat neutral picture for the market's short-term trend. After successfully testing its January low earlier this month, the S&P 500 tested its early February peak at 1947 and its 50-day moving average. Chart 1 shows the SPX backing off from both of those resistance barriers. That's keeping the market's short-term trend in a sideways pattern. The fact that the 50-day average remains well below the 200-day, however, still presents a generally negative picture. The same is true of energy stocks. Although they have reached long-term support and in an oversold condition, upward progress hasn't been that impressive. Chart 2 shows the Energy SPDR (XLE) trying to turn positive in afternoon trading. The XLE, however, remains below its 50-day average. Even so, any buying in the energy patch could help stabilize the rest of the market. The direction of bank stocks may also be tied to the direction of oil.
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Chart 1
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Chart 2
BANK STOCKS ALSO FOLLOW OIL... A weak crude oil market is hurting bank stocks which have loan exposure to energy companies. The daily bars in Chart 3 show the KBW Bank SPDR (KBE) still in a downtrend after recently hitting the lowest level in more than two years. I recently showed the KBE testing potential chart support along its 2010 peak and in an oversold condition. The KBE is trying to stabilize with the price of oil today after a lower open. Even if it does, however, it still has a long way to go to repair its recent technical damage. It's hard to imagine the stock market doing too much on the upside without some help from banks. And banks need a lot of help from oil.
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Chart 3
LONGER-TERM INDICATORS NEED TO SHOW IMPROVEMENT... Short-term indicators always turn up first at market bottoms. That's because they're more sensitive than their longer-range counterparts. At the same time, short-term rallies can't carry very far until longer-term indicators start to show improvement as well. Longer-range indicators act as filters on shorter-term ones. Buy signals on "daily" charts usually don't carry too far as long as "weekly" indicators are negative. Daily MACD lines for the S&P 500 in Chart 1 are positive. Weekly MACD lines for the SPX in Chart 4, however, are still negative. They have reached potential support near their 2011 low. In addition, the two lines are starting to converge a bit (as shown by the rising histogram bars). To improve the chances for an "intermediate term" bounce, however, the two weekly MACD lines need to turn positive. The fact that monthly MACD lines are still negative provides an even bigger headwind for the market. It's encouraging to see an oversold market trying to stabilize. But any meaningful advance is unlikely until longer-range indicators start to improve.
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Chart 4
MONT...
