May 18, 2013 at 12:01 PM | written by Arthur Hill
There were concerns a month ago when the defensive sectors were leading the market, but this changed as the offensive sectors took control over the past month. The defensive sectors include healthcare, consumer staples and utilities. The offensive sectors include technology, consumer discretionary, industrials and financials. Chartists can use PerfCharts with different date ranges to spot shifts in sector rotation. The first PerfChart shows the percentage change for the nine sector SPDRs from mid March to mid April. Chartists can set a past date range by right clicking on the date slider to select one month and then dragging the slider to the left. Notice that the three defensive sectors were up sharply during this period. In contrast, three of the four offensive sectors were down. The Consumer Discretionary SPDR (XLY) gained, but this gain was a paltry .47%, and the sector still showed relative weakness.
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The second PerfChart shows these same nine sectors from mid April to mid May. Notice that the four offensive sectors are up more than 8% and seriously outperforming the defensive sectors. Relative strength in these offensive sectors reflects a strong appetite for risk and this is healthy for the market. It is also positive to note that the Energy SPDR (XLE) and Materials SPDR (XLB) are also showing upside leadership. These two sectors are also considered "cyclical" because they perform best when the economy is expanding.
Good charting!
--Arthur Hill CMT
May 03, 2013 at 4:36 PM | written by Arthur Hill
The Equal-weight Consumer Discretionary ETF (RCD) and the Retail SPDR (XRT) hit 52-week highs in price and relative strength this week. New highs and relative strength in these two groups is very positive for the market overall. As its name suggests, the consumer discretionary sector is the most economically sensitive sector. Retailers feature prominently in this sector and retail spending accounts for some 2/3 of GDP. If performance of these two ETFs is indicative of consumer spending, then the economy and broader market are in good shape. Neither shows absolute or relative weakness for the moment.
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The first chart shows RCD within a large rising channel over the last 18 months. The ETF is now in the upper half of this channel and the upper trend line extends into the low 70s over the next few months. Support is marked in the 59-60 area. There is also a smaller rising channel taking shape since November. The ETF is nearing the upper trend line of this channel and getting short-term overbought. The second chart shows the Retail SPDR (XRT) with similar characteristics.
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April 20, 2013 at 5:22 AM | written by Arthur Hill
The 7-10 YR Treasury Bond ETF (IEF) is challenging resistance and a breakout would have negative consequences for stocks. Stocks and Treasury bonds are negatively correlated because they march to the beat of different drummers. Treasury bonds move higher because of deflationary pressures, signs of economic weakness or both. We could be getting a little of both recently. Gold, oil and copper fell sharply in April and this is more deflationary than inflationary. Economic reports have been soft over the last few weeks and first quarter earnings have largely disappointed. After earnings season, our next big batch of economic reports will hit in early May.
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The first chart shows the 7-10 year T-Bond ETF (IEF) moving to the top of a trading range that extends back to June 2012. The ETF moved sharply higher from February 2011 to June 2012 and then traced out a flat trading range. Technically, a flat range after an advance is a bullish continuation pattern and a breakout here would signal a continuation higher, which would be negative for stocks. The indicator window shows MACD turning up, breaking its signal line and moving into positive territory. Momentum is bullish. The second chart shows the 20+ Year T-Bond ETF (TLT) breaking above the upper trend line of a falling wedge. This surge and breakout signal a continuation of the bigger uptrend. It would take a quick move below 120 to negate this breakout.
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Good Trading!
--Arthur Hill CMT
April 06, 2013 at 10:39 AM | written by Arthur Hill
The Directional Movement Indicators have equalized as trading turns flat for the Dow SPDR (DIA), but the overall trend remains up as the ETF tests its first support zone. Let's look at support first. DIA hit 144 on March 11th and then traded flat the last few weeks with several crosses of this level. DIA dipped to 144.05 in early trading on Friday, but rallied after the weak open and closed above 145. Support in the 144 area extends from the mid March consolidation. A move below the consolidation lows would break support and argue for a deeper correction, perhaps to the 138-140 area.
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The indicator window shows the Average Directional Index (ADX) along with Plus Directional Movement (+DI) and Minus Directional Movement (-DI). +DI (green) crossed above –DI (red) on December 5th and exceeded +30 to kick off the current uptrend. I am using 30 to confirm crossovers and reduce whipsaws. Notice how +DI has moved above/below 30 since December, but –DI has yet to exceed this level. Most recently, the indicators converged in the low 20s as directional movement flattened and –DI crossed above +DI this week. Even so, the bulls still have the edge because +DI was the last one to exceed 30. –DI would have to break above 30 to confirm this crossover and reverse this edge. You can read more about these indicators in
our ChartSchool.Made in Manhattan!
--Arthur Hill CMT
March 16, 2013 at 7:58 AM | written by Arthur Hill
The Nasdaq 100 ETF (QQQ) and the Technology SPDR (XLK) have been underperforming the broader market, but both remain in uptrends since mid November and are holding their March gaps. Relative weakness stems from Apple, which is the biggest component for both ETFs. Microsoft, which accounts for over 7% of each ETF, has also been underperforming the broader market for several months. The first chart shows XLK breaking above resistance at 30 with a gap-surge in early March. This breakout is holding with broken resistance and the gap marking a support zone. A move below 29.75 would fill the gap and negate the breakout. RSI confirms that the cup is half full. Notice that this momentum oscillator held the 40-50 zone in December and again in February. Momentum favors the bulls as long as RSI holds above 40. I suspect that RSI would break 40 if/when XLK breaks the December trend line.
The second chart shows QQQ with similar characteristics. A small flat consolidation formed after the surge. This looks like a flag, which could be flying at half-mast. A breakout would signal a continuation higher and target a move to around 70. The flagpole extends 3 points (±66 to ±69) and this amount is added to the flag low (±68 + 3 = 71).
Happy St Paddy's Day!
Arthur O'Hill CMT
March 02, 2013 at 10:49 AM | written by Arthur Hill
The Dollar Bullish ETF (UUP) extended its advance with a break above the mid November high this week and a fresh six month high. UUP is at levels not seen since August 2012 and this surge could weigh on stocks because the Dollar and stock market have been negatively correlated the last three years. A rising Dollar could also signal a return to a risk-off environment. On the chart below, it looks like UUP formed a higher low around 21.50 and the February breakout signals a continuation of an uptrend that has been in place since August 2011. The yellow area marks the next target zone in the 23.50 area. The upper trend line of the rising channel and the 50-62% retracements were used for this target.
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Watch the Euro for clues because it accounts for around 57% of the US Dollar Index and the Dollar Bullish ETF. The second chart shows the Euro Trust (FXE) breaking the July trend line and piercing support from the January low. This breakdown signals a continuation of the prior decline (May 2011 to July 2012), and the next support zone resides in the 118-120 area. The indicator window confirms the breakdown as StochRSI broke below its November low and below .40 for the first time since July.
Good trading!
--Arthur Hill CMT
February 16, 2013 at 9:46 AM | written by Arthur Hill
The Nasdaq 100 ETF (QQQ) just can’t seem to find its mojo this year, but the 2013 trend is still up and the bulls still have the edge, albeit a slight edge. First, note that QQQ has been trending higher since mid November. A three month uptrend means the medium-term trend is up, which establishes the path of least resistance. Second, QQQ stalled the first six weeks of the year and the Bollinger Bands narrowed significantly in early February. A Bollinger Band squeeze signals a volatility contraction that can lead to a volatility expansion.
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It looked like the bulls were taking control when QQQ gapped up and broke resistance six days ago, but the ETF went right back into stall mode after this breakout. Looks like the volatility expansion has been put on hold. Technically, the breakout is holding because the gap has yet to be filled. After holding 67.50 for six days, a close below this level would provide the first sign of trouble. Medium-term, the January-February lows mark key support in the 66-66.50 area. Also notice that Aroon Up (green) remains above Aroon Down (red), although Aroon Down moved above 50 this week. A bearish Aroon cross would put another straw on the bull’s back. You can read more about the
Bollinger Band Squeeze and
Aroon indicators in our ChartSchool.
Enjoy the long weekend!
Arthur Hill CMT
February 02, 2013 at 12:10 PM | written by Arthur Hill
With a 150-point gain to end the week, the Dow Industrials closed above the next big number (14000) and hit a significant milestone. There is usually nothing special about round numbers, such as 14000, but this number is special because the Dow failed at 14000 in 2007. The financial crisis and subsequent swoon in financial stocks helped push the senior average below 7000 in early 2009. Friday’s advance allowed the Dow to complete a six year round trip. What a long strange trip it’s been. The chart below shows the Dow falling 50% and then requiring a 100% advance to make up for this decline. This is a great lesson for traders. In percentage terms, it always takes a bigger advance to make up for a loss. A decline from 100 to 80 is 20%, but it takes a 25% gain to back to 100 and make up for that loss. This is why risk management is so important.
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Speaking of risk, the Dow is short-term overbought after a 1000 point advance in five weeks. Nevertheless, the path of least resistance is up and I would consider the long-term trend bullish as long as the Dow holds its rising 24-month EMA and the Commodity Channel Index (CCI) remains in positive territory. As the vertical lines show, this combination has been pretty good at defining long-term trend changes over the last 10 years. Broken resistance in the 13650 area turns into the first support zone to watch on any pullback.
Go Niners!
Arthur Hill CMT
January 19, 2013 at 1:26 PM | written by Arthur Hill
The Technology SPDR (XLK) has been lagging the broader market for some time now, but the trend since mid November remains up and a bullish continuation pattern is taking shape this month. Weighed down by its top components, XLK has been lagging the S&P 500 ETF since September. Relative weakness continued in January as the price relative fell further the last 2-3 weeks and recorded a 52-week low. Relative weakness in this key sector SPDR is negative, but the trend since mid November remains up. The blue trend lines show a rising wedge taking shape the last two months.
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Even though rising wedges are potentially bearish, the wedge is currently rising and the trend is up as long as it rises. A break below the November trend line would provide the first sign of a medium-term trend reversal. Short-term, XLK formed a smaller falling wedge this month. Note that this pattern evolved after the 31-Dec surge and 2-Jan gap. Technically, this pattern looks like a bullish continuation pattern akin to a falling flag or pennant. A move above the orange resistance zone would reverse this fall and signal a continuation higher. Next week should tell the tale because IBM reports on Tuesday and Apple reports on Wednesday.
Good day and good trading!
Arthur Hill CMT
January 05, 2013 at 8:03 AM | written by Arthur Hill
It was a volatile week for gold and gold miners, but the Gold Miners ETF (GDX) remains at an interesting juncture that warrants attention. After surging above 47 to start the New Year, the Fed minutes on Wednesday put some doubts on the future of quantitative easing. Keep in mind that the Fed announced its latest quantitative easing program in mid September and suggested then that it would be open ended. Even though the Fed minutes got the blame for this week's plunge back below 46, I am not so sure of this connection because gold and the Gold Miners ETF (GDX) have been moving lower since October, which was just after the Fed announced its latest round of quantitative easing. Gold may be marching to the beat of a different fundamental drummer.
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Whatever the case, the trends for the Gold Miners ETF (GDX) and the Gold Miners Bullish Percent Index ($BPGDM) are clearly down as GDX fell back to potential support with a sharp decline the last 2-3 days. Note that support is just “potential” because the trend is down. Resistance levels are expected to hold during downtrends and support levels are expected to fold. The 45 area is “interesting” because GDX formed a falling wedge the last few months and is trading in a Fibonacci cluster. Falling wedges are typical for corrections and this Fibonacci cluster could mark a reversal zone. The last two peaks established resistance in the 47.60 area and a break above these peaks is needed to reverse the downtrend. Until such a trend reversal, this downtrend could extend to next support in the 39-40 area. The indicator window shows the Gold Miners Bullish Percent Index trending lower since October as well. A break above 40% is needed to reverse the downtrend in this breadth indicator.
Best wishes for 2013!
Arthur Hill CMT
December 22, 2012 at 8:48 AM | written by Arthur Hill
2012 is ending with a bang for banking stocks as sentiment towards this sector improved significantly in December. Perhaps the big banks are looking forward to open-ended quantitative easing in 2013. The chart below shows the Finance SPDR (XLF) breaking above its autumn highs to record a 52-week high. In addition, the price relative (XLF:SPY ratio) recorded a 52-week high as XLF led the market higher. On the price chart, broken resistance in the 15.75-16.25 area turns into the first support zone to watch on any throwback (pullback). XLF is a bit overbought after a 10% advance since mid November, which makes it ripe for a pullback or consolidation. However, any weakness would be deemed a correction within a bigger uptrend.
Click this image for a live chart
Regional banks are not as strong as the big banks, but the Regional Bank SPDR (KRE) came to life with a triangle breakout. KRE surged in mid November, consolidated with a small triangle (pennant) and broke resistance with a big move. This is a bullish development and the triangle now marks a support zone. The indicator window shows the price relative (KRE:SPY ratio) surging above the late October trend line.
Merry Christmas and Happy New Year!!
--Arthur Hill CMT
December 08, 2012 at 6:00 AM | written by Arthur Hill
Gasoline Jan13 (^RBF13) formed a lower high and broke support with a sharp decline this week. First, notice that the trend since mid September is down with a series of lower lows and lower highs taking shape the last few months. This week’s breakdown signals a continuation of the medium-term downtrend and targets a move to the lower channel trend line. Potential support in the 2.50 area is confirmed by the 50-62% retracement zone. The indicator window shows MACD turning bearish with a move below its signal line and into negative territory. ETF traders can refer to the US Gasoline Fund (UGA).
Click this image for a live chart.
Light Crude Jan13 (^CLF13) is also sporting a bearish setup. Note that the overall trend since mid September is down. Crude is attempting to firm in the 85-90 area, but cannot break 90 to reverse the downtrend. A breakout, and close, above 90 would be medium-term bullish. Barring a breakout, note that crude formed a bear flag over the last six weeks. Flags are continuation patterns. Bearish flags slope up and bullish flags slope down. A break below flag support would signal a continuation lower and target a move to next support in the 80 area. ETF traders can refer to the US Oil Fund (USO).
November 16, 2012 at 11:20 PM | written by Arthur Hill
All sectors are down over the last two months, but some are down less than others. Of the nine sector SPDRs, the Consumer Staples SPDR (XLP) and the Healthcare SPDR (XLV) are holding up the best. Relative strength in these two defensive sectors confirms that the market is currently in risk-averse mode. The chart below shows the Healthcare SPDR declining the last five weeks with a falling channel. This channel defines the downtrend and prices need to break the channel to reverse the downtrend. Even though we have yet to see a reversal, there are signs of support as the ETF nears the August consolidation and the 50% retracement. Also notice that XLV led the sectors on Friday with the biggest bounce - although the bounce was rather modest. The indicator window shows the Commodity Channel Index (CCI) moving lower since early September. A break above the red trend line and a move into positive territory would signal a bullish reversal in momentum.
Click this image for a live chart
November 02, 2012 at 7:13 PM | written by Arthur Hill
Stocks surged on Thursday and even followed through on Friday morning, but strength did not last long as selling pressure kicked in after the initial pop. Perhaps some pre-election jitters produced this classic pop and drop. Whatever the case, the Russell 2000 hit stiff resistance near its channel trend line and remains in a short-term downtrend. The chart below shows the index zigzagging lower since mid September. $RUT found support at the 200-day moving average and the late August consolidation (yellow area). Thursday’s surge off support was impressive, but follow through is what separates one-hit wonders from trend reversals. A follow through breakout is needed to reverse this seven-week slide and signal a continuation of the bigger uptrend, which has been in place since early June.
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The indicator window shows the $RUT:$SPX ratio triangulating the last four months. A potential higher low could be forming in October, but we need to see a breakout to signal relative strength in the Russell 2000 (small-caps). This would be positive for the overall market. Note, however, that a break below the October low would signal renewed relative weakness in small-caps.
Good trading and good weekend!
Arthur Hill CMT
October 20, 2012 at 9:30 AM | written by Arthur Hill
Weakness in the technology sector has been offset by strength in the finance sector since early September. This is why the S&P 500 is range bound the last five weeks and the Nasdaq is in a downtrend. With these two sectors cancelling each other out, chartists must turn to another sector to break the deadlock. My vote goes to the consumer discretionary sector because it is the most economically sensitive sector. One could also consider the industrials sector because it supplies companies with capital-intensive goods and services needed for their operations. Both sectors are clearly important to the economy and the broader market.
Click this image for a live chart.
The first chart shows the Industrials SPDR (XLI) in an uptrend since June. Even though XLI did not take out its spring high, it has yet to break consolidation support. XLI established support with the last two troughs and the June trend line. Look for a break below this level to reverse the uptrend. The indicator window shows the Percent Price Oscillator (PPO) moving lower the last two months, but remaining in positive territory. The trend line breaks act as early warning signals. Note, however, that it takes a centerline cross (zero) to fully reverse momentum.
Click this image for a live chart.
The second chart shows the Consumer Discretionary SPDR (XLY) breaking resistance from the May high and broken resistance turning into support the last few weeks. XLY declined sharply two weeks ago, but ultimately held support and bounced early last week. The ETF declined sharply on Friday to set up another important support test at 46. The indicator window shows the PPO breaking its June trend line and moving lower the last few weeks. Breakdowns in both XLI and XLY would be bearish for the broader market.
Good trading and good charting!
Arthur Hill CMT
September 15, 2012 at 12:51 PM | written by Arthur Hill
Stocks surged on Thursday after the Fed announced another round of quantitative easing, and extended their gains on Friday. Obviously, the stock market is pleased with the announcement. The chart below shows the S&P 500 since September 2008 and the yellow areas mark the beginning-end of the prior quantitative easing programs. Even though two QE cycles are not enough to establish a trend, notice that the stock market rallied during the prior two QE periods and fell sharply when they ended (red arrows). Of course, the S&P 500 was up substantially before these declines and ripe for a correction. More importantly, the index established a higher low after each decline and subsequently advanced to new highs. As the blue channel lines show, the trend is clear on this chart. Even though chartists can debate whether or not the index is overbought and ripe for a correction or pullback, there is no arguing the uptrend. Anything trading at a 52-week high is in an uptrend.
Click this image for a live chart.
The indicator window shows the Vortex Indicator, which is new at StockCharts.com. This indicator combines elements of the Average True Range (ATR), Plus Directional Movement (+DM), Minus Directional Movement (-DM) and the properties of a vortex flow. See the ChartSchool article for the all the gory details. This indicator consists of two lines: a green line to measure upward price movement and a red line to measure downward price movement. The bulls have the edge when the green line is above the red line. The bears have the edge when the red line is above the green line. As with all indicators, it is not immune to whipsaws and bad signals. The Vortex Indicator is helpful for trend identification because it is unambiguous. Either the green line is above the red line or it isn’t.
Have a great weekend!
Arthur Hill CMT
September 01, 2012 at 4:38 AM | written by Arthur Hill
Even though the S&P 1500 Index ($EIS) is trading near its spring highs and within a few percent of a 52-week high, Net New Highs have shown less strength since early July and divergences have formed. Keep in mind that less strength is not the same as weakness. New highs are still outpacing new lows, just at a lesser rate. The chart below shows US Net New Highs ($USHL) in the indicator window, the cumulative Net New Highs line in the main window and the S&P 1500 Index. $USHL equals NYSE and Nasdaq new highs less NYSE and Nasdaq new lows. Think of it as new highs and new lows for the market overall. The S&P 1500 Index combines the S&P 500, S&P MidCap 400 and S&P SmallCap 600 into one large index.
Click this image for a live chart.
Net New Highs remain bullish overall, but a bearish divergence is brewing and this should be watched closely. Notice how US Net New Highs peaked near +600 in early July and then formed lower highs. Even though the index is up significantly since early July, Net New Highs have not expanded past +400 since early July. This indicates that participation in the advance is narrowing. Nevertheless, the bulls still have an edge as long as new highs outpace new lows. The cumulative Net New Highs line continues to rise and remains above its 10-day EMA. A break below this moving average would reflect an increase in new lows and turn the indicator bearish.
Have a great Labor Day weekend!
--Arthur Hill CMT
August 17, 2012 at 4:36 PM | written by Arthur Hill
Large-caps continue to lead the market as the S&P 100 ($OEX) recorded a 52-week high this week. Thus far, the S&P 100 is the only major index to reach this milestone. The Nasdaq, Russell 2000, S&P 500 and Dow Industrials remain shy of their spring highs. This means the S&P 100 is leading the market and large-caps are showing relative strength. Even though $OEX may be short-term overbought, this fresh 52-week high confirms that this key index remains in an uptrend.
Click this image for a live chart.
The PerfChart shows the three month percentage change for six major indices: the S&P 100, S&P 500, S&P MidCap 400, S&P SmallCap 600, Nasdaq and Dow Industrials. $OEX shows the biggest gain over this timeframe (+9.35%), but the Nasdaq is not far behind with a 9.34% gain. Techs and large-caps are clearly the leaders. $MID, which represents mid-caps, shows the smallest gain, which means it is underperforming. $INDU is also underperforming with the second smallest gain.
Good trading,
Arthur Hill CMT
August 04, 2012 at 3:40 AM | written by Arthur Hill
Stocks turned a negative week into a positive week with a sharp advance on Friday. The S&P 500 ETF, Dow Industrials SPDR and Nasdaq 100 ETF recouped their early week losses and exceeded their July highs. The Russell 2000 ETF (IWM) and S&P MidCap 400 SPDR (MDY), however, recovered a portion of their early week losses and have yet to exceed their mid July highs. In other words, these two remain short of breakouts and have yet to confirm strength in the other three. For now, three of the five are in clear uptrends and the bulls have the edge. I will be watching IWM and MDY to see if they can break resistance and join the rally. Relative weakness in both is casting a shadow on this bull run. The details are on the charts below.
Click this image for a live chart
Click this image for a live chart.
Good trading!
Arthur Hill CMT
July 21, 2012 at 6:25 AM | written by Arthur Hill
The first chart shows the S&P Sector PerfChart for the one month time frame (22 trading days) and the second chart shows the three month timeframe (64 trading days). Note that these PerfCharts show relative performance, which is the amount the SPDR is outperforming or underperforming the S&P 500. SPDRs in positive territory are leading and outperforming, while SPDRs in negative territory are lagging and underperforming. Both PerfCharts show the same picture: the offensive sectors are underperforming and the defensive sectors are outperforming. The offensive sectors include consumer discretionary, finance, industrials and technology. The defensive sectors are consumer staples, healthcare and utilities. Also note that energy is a leading sector. Relative strength in the defensive sectors indicates risk aversion and a preference for safety. Such risk aversion is negative for the broader market and could foreshadow an summer peak in the S&P 500.
Click this image for a live chart.
Good day and good trading,
--Arthur Hill CMT
July 07, 2012 at 1:16 AM | written by Arthur Hill
Relative weakness in the **Networking iShares (IGN)** and the **Market Vectors Semiconductor ETF (SMH)** weighed on the technology sector this week. The chart below shows SMH breaking down in May and then bouncing back to broken support in mid June. While SPY moved above its mid June high, SMH did not and showed relative weakness. The support break held and resistance has been affirmed at 33 with the decline on Thursday-Friday. The indicator window shows the SMH:SPY ratio peaking in February and moving to a new low today. Semis represent a key technology group and a cyclical industry. Relative weakness is negative for the market overall.
Click this image for a live chart.
The second chart shows the Networking iShares (IGN) falling over 3% on Friday. Notice that IGN broke down in April, which was well ahead of the broader market breakdown in May. The ETF declined to its October low in early June and then firmed the last five weeks. While the broader market moved higher in June, IGN stalled and could not break above 26. This showed relative weakness, which is confirmed by the steady decline in the Price Relative (IGN:SPY ratio). The Nasdaq and technology sector are not going far unless these two key ETFs can break above their June highs.
Click this image for a live chart.
June 16, 2012 at 2:40 AM | written by Arthur Hill
The Russell 2000 ETF (IWM) got a bounce at the end of the week, but remains in a trading range since the June 6th gap. There are two dynamics at work on this chart. First, the medium-term trend is down after the ETF broke neckline support from a head-and-shoulders pattern. Broken support turned into resistance, which held in late May and early June. A convincing break back above this level is needed to negate the head-and-shoulders breakdown.
Click this image for a live chart.
The second dynamic is the short-term uptrend. This is a counter-trend bounce with a bigger downtrend. IWM formed an island reversal in early June with a gap and move back above the 200-day SMA. This gap is holding as the ETF consolidates with a volatile trading range. Notice how IWM crossed the 76 level at least five times in the last eight days. The gap is still holding and this week’s low marks support. A break below this low would signal a failed gap and a continuation of the medium-term downtrend. Of note, the indicator window shows the Price Relative (IWM:SPY ratio) hitting a new 2012 low this week. Small-caps are underperforming and this is a negative for the market overall.
Good trading!
Arthur Hill CMT
June 02, 2012 at 3:55 AM | written by Arthur Hill
After a failure at broken support, the Consumer Discretionary SPDR (XLY) looks set for a move towards a Fibonacci cluster. The chart below shows XLY breaking support and becoming oversold in mid May. The ETF then bounced back to broken support and this area turned into resistance. It is not uncommon to see such a “throwback” bounce, especially after becoming oversold. This bounce alleviated oversold conditions and this week’s decline signals a continuation of the May decline.
Click this image for a live chart.
With a continuation signaled, it is time to start thinking about potential supports and downside targets. The first target resides around 41 and the other in the 39.5 area. I am using the Fibonacci cluster for these targets because there are two lows and one distinct high. The orange Fibonacci Retracements Tool extends from the October low to the May high. The gray Fibonacci Retracements Tool extends from the November low to the May high. I then look for clusters or where the two retracements closely overlap. The current decline off broken support looks quite strong and this leads me to believe that XLY will hit the lower cluster in the 39.5-40 area. Also notice that the 200-day moving average is right between tehse two clusers. You can read more about Fibonacci levels in our ChartSchool article.
Good trading,
Arthur Hill CMT
May 19, 2012 at 8:27 AM | written by Arthur Hill
With big declines this past week, the Dow Industrials and Dow Transports both broke support levels and forged lower lows. Confirmed lower lows amount to a Dow Theory sell signal. The first chart shows the Dow Industrials forming a double top and breaking double top support with a decline below 12700 this week. Broken resistance marks the first potential support level in the 12200 area, which is not far off. The indicator window shows RSI moving below 30 for the first time since early August. While this does suggest an oversold condition, notice that the Dow traded flat in August-September and did not bounce until early October. Should the Dow bounce next week, look for first resistance from broken support in the 12800 area.
The Dow Transports peaked around 5400 in early February and traded sideways for three months. This showed an extended period of indecision or a standoff between bulls and bears. With a sharp decline below 5000 this week, the Average clearly broke support and the bears prevailed. The next support zone resides around 4750 from the reaction lows (troughs) in mid November and mid December. Broken support turns into first resistance in the 5100 area. Notice that RSI also became oversold for the first time since early August. Also note that this oversold condition did not foreshadow a lasting bounce as the Average floundered for several weeks and broke its August lows in late September and early October. Oversold is a sign of weakness because it requires strong selling pressure to push RSI below 30.
Good Trading!
Arthur Hill CMT
May 05, 2012 at 8:50 AM | written by Arthur Hill
With a gap down and sharp decline, the Industrials SPDR (XLI) formed a lower high and broke wedge support. But that’s not all. The chart below also shows a potential head-and-shoulders pattern taking shape. After hitting a 52-week high in March, the ETF declined all the way back to the early March low in the 35.50 area. This deep dip showed an increase in selling pressure. Also notice the large gap down in early April.
Click this image for a live chart.
XLI was oversold in early April and bounced back to the 37.5 area. This bounce formed a lower high, which shows diminishing buying pressure because the ETF fell short of the prior high. This week’s wedge break reverses the April bounce and sets up a test of neckline support. A break below the March-April lows would complete the head-and-shoulders reversal and target a move to the next support zone around 34. Support here stems from the 50-62% retracement zone and broken resistance from the early December high.
The indicator window shows volume bars with downside volume (red) outpacing upside volume (green) since late March. This suggests that selling pressure is picking up steam and buying pressure is diminishing. Also notice that Friday’s decline occurred on the highest volume in nine days.
Good trading,
Arthur Hill CMT
