STOCKS PULL BACK ON TRADE NEWS -- STOCK INDEXES REMAIN OVERBOUGHT BUT STILL IN UPTRENDS -- RETAILERS WEIGH ON CONSUMER DISCRETIONARY SECTOR -- ENERGY STOCKS REBOUND WITH CRUDE OIL -- DROP IN BOND YIELDS BOOST DEFENSIVE STOCKS
STOCK INDEXES PULL BACK FROM OVERBOUGHT TERRITORY... News that a "phase one" trade deal may not be reached this year is contributing to selling in stocks today. That and the fact that stocks have reached overbought territory and are probably due for some profit-taking anyway. In fact, several short-term momentum indicators suggest that a pullback, or a period of consolidation, wouldn't be too surprising. Chart 1 shows the Dow Industrials losing ground today, but still trading above all three moving average lines. The first line of support that could be tested is the green 20-day line. Its 14-day RSI line in the upper box, however, recently moved into overbought territory over 70 for the first time since mid-July (see circles); and is starting to weaken.
Chart 2 shows a similar picture for the S&P 500. The chart in the upper middle box, however, shows the daily MACD lines having also reached a previous peak formed during July. That also suggests that the November rally has come too far too fast and is due for some profit-taking. Its first line of support is the 20-day day moving average (green arrow).
Chart 3 shows the Nasdaq Composite in a similar situation. Its 14-day RSI line is pulling back from overbought territory over 70. And its daily MACD lines (middle box) is up against resistance. The falling red line in the middle box, however, also shows the MACD histogram bars declining over the last couple of weeks. Those bars measure the difference between the two MACD lines. Their convergence suggests some loss of upside momentum; a drop below the zero line could signal more selling to come. Even if that were to occur, underlying chart support for all three indexes remains along the previous peaks formed during July and September.
RETAILERS WEIGH ON XLY...Seven stock sectors are in the red today.One of them showing sometrend damage is the Consumer Discretionary SPDR (XLY). Chart 4 shows the XLY falling below its blue 50-day average and trading at the lowest level in four weeks. Its 14-day RSI line (upper box) has fallen below 50; and its daily MACD lines (middle box) are negative. The XLY is being led lower by retail stocks, and apparel retailers in particular.
Chart 5 shows the S&P Retail SPDR (XRT) falling back to its late October low and its 2oo-day moving average. Urban Outfitters (-15%), L Brands (-6%), and Nordstrom (-4%) are leading apparel stocks lower. Auto stocks are also weighing on the XLY.
ENERGY STOCKS REBOUND...Energy is the day's strongest sector on the back of a rise in energy prices. Crude oil is rising 3% after weekly inventories rose less than expected. Chart 6 shows the Energy Sector SPDR (XLE) reversing higher today in an attempt to regain its 50-day moving average. The XLE failed a test of it red 200-day average earlier this month (red circle). Today's rebound keeps the XLE about midway between itsAugust low and September high. With little or no signs of trend direction.
DEFENSIVE STOCKS REBOUND... Only three other sectors are in the green today besides energy. They include utilities, real estate, and staples. That reflects a more defensive tone in the market. A drop in the 10-year Treasury yield to a two-week low is also giving a short-term boost to dividend-paying bond proxies.
