Sector Analysis 6 May 2012
/by Steve Auger
The charts are looking fairly bleak this week. Most of the sectors are either bearish or neutral. If the markets play out the same as over the last few years we should see a war between the stock traders and the Federal Reserve... I'm anticipating some pretty negative stock market behavior over the next weeks or possibly months. I like to think of this as a "temper tantrum", an attempt to force a new quantitative easing. Ultimately, the feds will buckle. Around election time, the last thing the government wants is more stock market losses.
On the brighter side, there is some cyclic action seen in many of the sectors. It appears that we are at a short term cycle low and we could possibly see some bullish activity early in the week.
iShares DJ US Telecom
ETF Symbol: IYZ
DJ US Telecom continues to trade in the lower portion of the ascending channel shown on the chart. It appears that the price will eventually breach the lower trend line although it may take some time to get to that point. This ETF appears to be at a short term cycle low, implying that prices will go higher early this coming week. This cyclical theme appears in many of the sectors. In any case, aggressive traders should play the short side by placing a sell stop below the lower trend line. Conservative traders should stay on the sidelines.
iShares DJ US Technology
ETF Symbol: IYW
On Friday, DJ US Technology breached the support level identified last week. It was recommended to re-enter a short position when that occurred. The Williams%R did not reach the -20 level last week on two attempts. This would imply further bearish action ahead. This ETF is sitting near local support so I wouldn't be surprised to see a bounce here but longer term the price should decline, at least down to the $72.50 level and possibly down to $69.60.
iShares DJ Transportation Average
ETF Symbol: IYT
DJ Transportation Average will likely fall down to the trend line shown in blue on the chart. There are two cycles running through the price chart. The cycle shown in gray indicates a cycle low. The longer cycle (shown in blue) is signalling a top with downward action to follow. Given the short cycle is seen in many of the sectors I believe this ETF will see some appreciation for a couple of days. This is supported by the Williams%R which is showing a repetitive bouncing up and down between -50 and -20+. Since the price came near the upper resistance level on Thursday before stumbling, I believe the next significant longer term move will be down to the lower trend line.
iShares DJ US Basic Materials
ETF Symbol: IYM
DJ US Basic Materials is still trading within a descending channel. There are two cycles seen in the price chart, a 10 day cycle and a ~24 day cycle. The 10 day cycle signaled a market low on Friday. The longer term cycle will last about another week with another cycle low. So there may possibly be a bounce here then retreat later in the week. The Williams%R shows that the ETF is oversold. It is difficult to read the OBV right now.
iShares DJ US Consumer Goods
ETF Symbol: IYK
DJ US Consumer Goods has formed a symmetrical triangle. As with many of the other sector ETFs, there are two cycles going on. The shorter cycle indicates a cycle low while the longer term cycle causes me to anticipate another cycle low in about a week. The On-Balance Volume is exhibiting bearish divergence and Williams%R is dropping. I suggest staying on the sidelines but aggressive traders could trade the short sideon a sell stop below the lower trend line shown on the chart. If the price penetrates the upper trend line then consider going long. This would then be considered a period of consolidation after a run-up. Very bullish.
iShares DJ US Industrial
ETF Symbol: IYJ
I would look for an exit from last week's long position in DJ US Industrial. As with many other ETFs, there are two cycles seen in the price chart. We may have experienced a cycle low. If there is a bounce up to the $71 level then exit long positions. If there is no bounce then the price will likely drop to the $68 support level. Aggressive traders could add to long positions at that point if the price lines up with the longer cycle low (in about a week) - play a short term bounce. The support level probably won't hold for a long period of time.
iShares DJ US Healthcare
ETF Symbol: IYH
DJ US Healthcare is at a support level. If this level is breached then the price will drop to the $75.50 level. Otherwise the price will go up, seeing significant resistance at the $78.80 level.
iShares DJ US Financial
ETF Symbol: IYF
DJ US Financial is trading within a horizontal channel (between support and resistance levels). Cycle analysis indicates that the ETF is at a low with possible short term bullishness. As with last week, I suggest putting a buy stop above the resistance level and a sell stop below the support level shown on the chart.
iShares DJ US Energy
ETF Symbol: IYE
DJ US Energy retreated back to a fairly significant support level. The last two weeks have been quite volatile. Look for a breach of the support level. This will signal a significant bear market.
iShares DJ US Consumer Services
ETF Symbol: IYC
DJ US Consumer Services has a cycle within the price chart but is predicting a cycle low in a couple of days. This is in contrast to the other ETFs showing that a cycle low occurred on Friday. An ascending wedge has formed - a breach of the lower trend line here would be very bearish as the ETF has a long way to fall.
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iShares DJ US Utilities
ETF Symbol: IDU
DJ US Utilities broke out but could not penetrate the resistance level of ~$88.75. The price is sitting at a support level. I'm expecting a run up to the resistance level shown in red on the chart. But put in a tight protective stop here.
Disclosure: The author "Walks the walk" in addition to "Talking the Talk".
