OVERSOLD DOW IS BOUNCING FROM CHART SUPPORT -- SO ARE BOEING AND CATERPILLAR -- OPEC AGREEMENT BOOSTS CRUDE OIL AND ENERGY SHARES -- CHEVRON AND EXXON MOBIL LEAD DOW HIGHER -- TECHNOLOGY SHARES EXPERIENCE SOME PROFIT-TAKING
THE DOW IS BOUNCING OFF CHART SUPPORT ... The Dow Industrials have been the weakest part of the U.S. stock market over the last month. That's been due primarily to its heavier exposure to stocks with more vulnerability to any Chinese trade tariffs like Boeing and Caterpillar. Those two stocks are helping lead the Dow higher today (more on that shortly). Today's bounce in the Dow is also coming at a good time. Our first chart shows why. The daily bars in Chart 1 show the Dow Industrials finding support just above its late May intra-day low at 24,200 (flat line) and its rising 200-day average (red arrow). In addition, its 9-day RSI line (top box) is bouncing from oversold territory at 30. The Dow needed to stay above both of those support levels to keep its uptrend intact. It's getting a lot of help today from rising energy shares. Boeing and Caterpillar are also helping.
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Chart 1
BOEING AND CATERPILLAR ARE ALSO OVERSOLD AND BOUNCING ... Because of its high price, Boeing (BA) has the biggest impact on the price-weighted Dow Jones Industrial Average. As a result, it's had a lot to do with the Dow's recent weak performance. Chart 2, however, shows Boeing trying to stabilize today. It's getting some support from the fact that its 9-day RSI line (top box) has reached oversold territory at 30 for the first time since late March. In addition, it has retraced 62% of its April/June rally as shown by its green Fibonnaci retracement lines. The lower horizontal line (green arrow) usually provides support in an oversold condition. Chart 3 shows Caterpillar (CAT) rebounding from chart support along its April/May lows. Its 9-day RSI line is the most oversold (below 30) since early February. This is a logical spot for it to attempt a rebound.
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Chart 2
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Chart 3
ENERGY SHARES RALLY ON OPEC AGREEMENT -- CHEVRON LEADS DOW... Today's OPEC agreement in Vienna is expected to result in a production increase of 600,000 barrels of oil a day. which is lower than expected. That's pushing the price of crude oil sharply higher today and helping make energy the day's strongest sector. The daily bars in Chart 4 show the Energy SPDR (XLE) climbing back above its 50-day average today (blue line) and bouncing off chart support formed in late May. The XLE hit a three year high during May has has suffered a modest pullback since then. This would be a logical spot for the XLE to start climbing again, especially if the price of oil continues to strengthen. Chart 5 shows Chevron (CVX) trading in a "symmetrical triangle" over the past month. That triangle is marked by two converging trendlines, and usually marks a pause in an ongoing uptrend. Chevron and Exxon Mobil (XOM) are leading the Dow higher today. Ten of eleven sectors are up today. The only loser is technology.
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Chart 4
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Chart 5
TECHNOLOGY SHARES WEAKEN ... Technology shares have been leading the rest of the market higher this year. Today, however, technology shares are the day's weakest sector. The top box in Chart 6 also shows the 14-day Rate of Change (ROC) oscillator falling below its zero line for the first time in two months. That suggests some loss of upside momentum. The daily bars, however, show the XLK having reached a record high earlier this month and still trading well above its 50-day average (blue arrow). A short-term pullback or consolidation would not be surprising and would probably be healthy. It's also possible that investors are rotating some money from overbought technology shares into other sectors of the market that are more oversold. A broadening out of the market's uptrend would also be a healthy development. Today's rebound in foreign markets may also be an encouraging sign. My Wednesday message showed that foreign stock indexes are in the process of testing important support levels. That's especially true of emerging markets. As I also suggested on Wednesday, stronger foreign stocks would lend support to any rally attempt in the states.
