The long weekend has not hit the market with any significant shocks though the Shanghai Composite did lose over 1.5%, but Eurozone stocks are firm. The US futures are higher as the positive tone from last week has continued.
The strong readings from the market internals discussed in Friday's Week Ahead review makes a new high in the S&P 500 likely over the next month. On a short-term basis, the odds do favor a slight pullback this week.
There are many economic reports this week that will give us a further read on manufacturing, as well as the housing market. Many traders are betting on weak earnings this week for three stocks in the materials sector, even though the Select Sector SPDR Materials (XLB) is one of the year's best sectors, up 2.8% YTD versus just a 0.9% gain in the Spyder Trust (SPY).
Do the weekly charts of these three stocks favor the traders' bearish bets or are they likely to get squeezed?
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Chart Analysis: The Select Sector SPDR Materials (XLB) tested its 20-week EMA last week before closing the week strongly.
- XLB tested its starc+ band in early March when it made a high of $48.26.
- The quarterly pivot at $46.11 (see table) was tested last week before it closed strongly.
- The weekly starc+ band is now at $49.60.
- The relative performance broke out to the upside in February as it overcame resistance at line b.
- The RS line is rising strongly and is close to new highs.
- The weekly OBV moved through its resistance, line c, in late January soon after it gave an AOT buy signal.
- The weekly WMA of the OBV is rising strongly.
- The XLB has short-term support in $46.70-$47.20.
Cliffs National Resources (CLF) is a high-yield stock I have been cautioning investors about for several years and most recently in January's 3 Market Dogs Still Barking. It has a current yield of 3.2% and reports earnings on April 24.
- As of the end of March, there were 51 million shares sold short with a short ratio of 10.8.
- CLF was down 34.7% in 2012, 30.5% in 2013, and 21.4% YTD, which has made it a real loser despite its high yield.
- The weekly chart shows a long-term downtrend, line e.
- The stock completed its bear flag or continuation pattern (dashed lines) in early 2014 as it broke support at line f.
- The stock has just turned down from its declining 20-week EMA.
- The relative performance also shows a pattern of lower highs and lower lows.
- The RS line has just tested its declining WMA.
- The weekly on-balance volume (OBV) broke its support (line h) in the middle of January confirming the price action.
- The recent rally failed below the quarterly pivot at $21.44 with the monthly projected pivot support at $16.11.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.