Last week I discussed the divergence between copper and the S&P which added to my argument which is that the S&P is closing in on a medium term top. In addition to the divergence in copper, AAPL, XOM, and CVX, the three largest components of the SPY, are also diverged from the overall market activity. This divergence is important to note because it means that money is moving out of large cap companies which are normally considered to be the safe haven in the equity markets when there are headwinds. If money is moving out of these companies at any time, then it can signal that bullish confidence is weakening.
AAPL has been weak since late February and has clearly underperformed the rest of the market. Perhaps the company is becoming more fair valued as competitors are moving in but with POMO still active, AAPL should at least be at sector performance but that has not been the case over the last 2 months and unlike the SPY, it has not recovered since the Japan scare. Note the bear flag that is setting up on the chart which is a continuation signal of a downtrend.
I gave out the alert to short XOM at $83.18 and it has since fallen to the target that I had put out of $80. It has bounced off of that support level on average volume and is testing the 100 MA. I don’t think that this 3 day rally is sustainable as the price of oil hasn’t gained back any ground and on the chart, XOM like AAPL is setting up a bear flag on this small move to the upside.
CVX hasn’t quite hit it’s target of $97.50 but it has fallen from when I gave out the short alert on the 9th of this month. It has outperformed the market and the chart isn’t as weak as XOM, but it is finding resistance at the 50 and 26 MA’s. If it cannot manage to confirm a close above these moving averages, then it is safe to say that it is in a downtrend and is unlikely to recover in the near future.
Confirming the moves in CVX and XOM is crude. It has not recovered from the $12 drop and is consolidating in a bearish pattern that is in the spirit of a bear pennant. With the dollar strengthening and QE 2 still set to expire in June, oil will likely consolidate over the summer as some economists have already been predicting.
On to the S&P SPDR, by observing the charts above, you can visually see the divergences taking place without using a performance chart. The S&P may continue to rally higher as divergences can take some time to fully correct themselves but the important thing to remember is that it will in fact correct itself one way or another. These divergences reinforce my belief that we’re going to see a weaker market and a stronger dollar over the summer. For those who do not wish to play the dollar from the long side, you can use this as an opportunity to buy stocks and commodities as they play out their own consolidations.
There are no charts for LinkedIn (LNKD) yet but the stock has soared over 135% since the open this morning. It sold for $45/share but with one hour left of trading, it is currently selling for $103/share. Market cap has more than doubled from $4 billion to $9 billion on it’s first day as a public company. Here’s the company profile from Yahoo for more info: http://finance.yahoo.com/q?s=lnkd&ql=1
*** On a side note, I am sorry for the delay in putting out any commentary but this past week has been beyond exhausting unfortunately due to non-finance related work, but such are lifestyles in this economy. I’ll be as active as I can and I’ll try to get back to the emails, so thank you to all who read my work and send me comments. – Aaron