SEVERAL STOCK INDEXES ARE TRYING TO STAY ABOVE MOVING AVERAGE LINES -- CYCLICALS AND BIOTECHS ARE STRUGGLING WITH 200-DAY LINES -- SO ARE EMERGING MARKET ISHARES
A LOT OF MOVING AVERAGES ARE BEING TESTED... Recent messages have focused on major U.S stock indexes reaching overhead resistance barriers which could slow their January advance; or maybe even end it. All of those major stock indexes remain below their 200-day averages; while their 50-day lines remain below their 200-day lines. That puts the onus on the bulls to push stock indexes high enough to reverse those negative trends. Yesterday's stock selloff suggested that the January rally might be stalling. That puts the market in an important testing process. The same is true of several stock groups. Today's message shows a number of group indexes that are struggling at their own moving average lines. What they do with those resistance lines may help determine the direction of the market as a whole. Let's start with some 200-day averages.
Chart 1 shows the Consumer Discretionary SPDR (XLY) meeting new selling at its 200-day average (red line). That's an important test for that economically-sensitive sector. Chart 2 shows the Biotechnology Index ($BTK) struggling to stay above its 200-day line. Looking overseas, Chart 3 shows Emerging Markets IShares (EEM) struggling with overhead resistance formed at its early December peak and its 200-day average. Emerging market stocks have led the January rebound in global stocks. What the EEM does from here may help determine if that rebound runs into trouble.
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Chart 1
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Chart 2
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Chart 3
TRANSPORTS AND ENERGY STOCKS SLIP BELOW 50-DAY LINES -- SMALL CAPS MAY BE NEXT... Some stock indexes are in danger of slipping back below their 50-day lines. Chart 4 shows the Dow Jones Transportation Average falling back below its 50-day average (blue line) in today's trading. The transports are one of the most economically-sensitive stock groups, and helped lead the fourth quarter meltdown. New selling in that group would be a negative sign for stocks. Energy stocks are also weakening. Chart 5 shows the Energy SPDR (XLE) trading below its 50-day line today. Weaker oil prices are the main reason why. And weaker oil prices are a sign of weaker global demand. That's another potential negative for U.S. stocks. Small caps may be the next group to fall below their 50-day line. Chart 6 shows the S&P 600 Small Cap index sitting right on its 50-day line. A close back below that resistance line would be a negative sign for that group, and large cap stocks as well. That's because large caps usually follow the direction of smaller stocks. Semiconductors are also in danger of falling back below their 50-day average.
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Chart 4
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Chart 5
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Chart 6
SEMICONDUCTORS ARE ALSO WEAKENING... Chart 7 shows the PHLX Semiconductor iShares (SOXX) also in danger of slipping back below their 50-day average. The SOXX remains well below its 200-day average, as does its 50-day average. And both moving average lines are declining. New selling in the chip group would have a negative effect on the technology sector, as well as the rest of the market. Semiconductors are considered to be bellwethers of the global economy, especially in Asia.
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Chart 7
OVERBOUGHT S&P 500 LOOKS TOPPY... Stocks are at an important chart juncture. Chart 8 shows the S&P 500 backing off from overhead resistance formed between its October-November lows and its early December high. It also remains well below its 200-day average (red line). Chart 8 also shows its 9-day RSI line (upper box) backing off from overbought territory at 70. After opening higher this morning, the stock rally appears to be fading. Chart 8 shows the SPX sitting right on its 50-day line (which is declining). Last week's move above that resistance line was an encouraging sign. A close back below that blue line this week would negate that positive short-term signal. And would strengthen the view that the January stock rebound is starting to weaken.
