Last week's lower close has left many of the key US markets on the verge of stronger sell signals but the global markets are starting off the week on a very positive note. Japan revised its first quarter growth to 4.1% as the Nikkei 225 gained almost 5%.
This could complete the correction in the Nikkei as it has reached the buy levels outlined last week. European stocks are strong as the Dax Index is up well over 1% in early trading with the S&P futures showing double digit gains.
Of course it will be the close Monday that is important as the daily charts reviewed in the Week Ahead column need two consecutive strong closes with strong A/D ratios to indicate that the correction is really over.
The DJ Technology Index has been lagging the overall market all year as it is up only 6.5% this year versus an 11.5% gain in the Spyder Trust (SPY). The technology sector is trying to once again become a market leading sector but will the reaction to this week's earnings from some well-known tech stocks push this sector into a leadership role?
Chart Analysis: The weekly chart of the DJ Technology Index (DJUSTC) shows that the downtrend connecting the 2007 and 2012 highs, line a, was tested two weeks ago.
- The recent high was at 798 with the 2012 high at 808.70.
- A close above both of these highs would be a positive sign for the intermediate term.
- The weekly relative performance moved above its WMA in early June, but is still well below its downtrend, line b.
- A higher close in the next two weeks could complete the bottom in the RS.
- There is next support at 761 and the 20-week EMA with the starc- band at 738.
Adobe Systems Inc. (ADBE) reports its earnings after the close on June 18 as it surprised the market in the last quarter when it beat forecasts by 10%.
- It hit a high of $47.17 in early May and then fell to a low of $41.91, which was a drop of over 11% from the highs.
- ADBE is still up over 13% for the year.
- The relative performance did confirm the recent highs before dropping below its WMA and initial support.
- The RS line has stronger support at the long-term uptrend, line e.
- The OBV is still making new highs and is holding above its WMA.
- A break of the uptrend in the OBV, line f, would be a sign of weakness.
- The daily OBV (not shown) has been below its WMA since early May.
Click to Enlarge
Micron Technology Inc. (MU) is a $13.14 billion semiconductor company that is up over 100% so far in 2013. It reports earnings after the close on June 19. Prices have now reached the trend line resistance, line a, from the 2010 and 2011 highs.
- For the past six weeks MU has been testing its starc + band and is currently trading above its monthly starc+ band.
- The relative performance broke its downtrend, line b, in early January and completed the bottom formation by the end of the month.
- The on-balance volume (OBV) broke its downtrend in January and retested its WMA in February, completing its bottom formation.
- Both the RS and the OBV made new highs last week, confirming the price action.
- The daily analysis (not shown) does show loss of upside momentum.
- There is first support in the $12-12.20 area and then at $11.40.
- The 38.2% Fibonacci support is now $10.12
Oracle Corporation (ORCL) dropped 11.8% after its last earnings report when it had reached a high of $36.43 in March. This was the long-term resistance from 2011, line d. It reports earnings after the close on June 20.
- ORCL dropped as low as $31.16 by the end of March.
- Prices are now testing the flat 20-week EMA.
- The weekly uptrend, line e, is now in the $32 area and a break below the March lows would be more negative.
- The relative performance has formed lower highs, line e, since late 2011.
- The RS line is trying to hold support at line f.
- The OBV is trying to hold above its WMA.
- A drop in the OBV below the April lows and support at line g, would be more negative.
- There is initial resistance at $34.80-$35.30
What it Means: The weekly chart of the DJ Technology Index (DJUSTC) indicates that positive action over the next two weeks could generate a positive signal for this sector.
Of the three stocks, Micron Technology Inc. (MU) looks the most positive from a long-term point of view, but it is overdue for a two-three week correction.
If Adobe Systems Inc. (ADBE) can hold its recent lows at $41.91, and then close back above $45, it will indicate that its correction is over.
Oracle Corporation (ORCL) looks the weakest, technically, and if its earnings disappoint again, the market may not be very forgiving.
How to Profit: No new recommendation
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.