RELATIVE WEAKNESS IN FINANCE WEIGHS
RELATIVE WEAKNESS IN FINANCE WEIGHS – HOMEBUILDERS CONTINUE TO UNDERPERFORM – RETAILS UNDER PRESSURE – WALMART HANGING TOUGH
RELATIVE WEAKNESS FINANCE WEIGHS… Even though the major indices and sectors remain in uptrends overall, there are a few key areas of weakness that merit attention. First and foremost, the Financials SPDR (XLF) remains a drag on the overall market. Even with strength in Bank of America (BAC) today, chart 1 shows XLF failing to hold early gains and affirming resistance at 15. Resistance in this area stems from the November highs and a 62% retracement of the October decline. A triangle is taking shape over the last two months. A break above 15 would be bullish, while a break below last week’s low would be bearish. The bottom indicator shows the price relative peaking in October and steadily declining the last seven weeks as XLF underperforms the S&P 500.
HOMEBUILDERS CONTINUE TO UNDERPERFORM… Chart 2 shows theHomebuilders SPDR (XHB) lagging the S&P 500 since mid September, which is when the ETF peaked around 16.5. The indicator window shows XHB (blue) with the S&P 500 (red). Notice that the S&P 500 continued to new reaction highs in October and November, but XHB forged lower highs over this same period. XHB sprang to life with a sharp advance in early November, but fell back over the last three weeks. While this fall-back looks like a falling flag, it is falling until there is a breakout at 15. This means the downtrend rules the roost. Barring a breakout at 15, the 62% retracement marks the next downside target around 13.
RETAILERS UNDER PRESSURE… Chart 3 shows the Retail SPDR (XRT)underperforming the S&P 500 since mid October. The ETF surged in early November, but fell short of its October high and moved lower the last four weeks. A small falling channel has taken shape, which defines the downtrend. Look for a break above channel resistance to reverse this slide. Even though the decline has been modest so far, it is a decline until proven otherwise and the next support area is around 31-32. The last three charts show key groups in downtrends over the last four weeks. Breakouts are needed before we can count on a Santa Claus rally.
Recent weakness in some key retailers is quite striking. Aeropostale (ARO) is down over 30% from its September high. Macy’s (M) and JC Penney (JCP) are down over 20% from their October highs. A number of retailers reported disappointing November sales this week. Chart 4 shows Abercrombie & Fitch (ANF) gapping down and losing over 8% on Thursday. Notice the gap above 38 failed to hold and this makes it an exhaustion gap. Chart 5 shows Children’s Place (PLCE) gapping below support and losing over 10%. On the discount side, chart 6 shows Walmart (WMT) holding its gains after a 10% surge. Walmart may be a popular place for holiday bargain hunters.
[Arthur Hill]
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