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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • 4 Industry Groups To Avoid

    The FOMC minutes had little impact on Wednesday's markets as most already realized that a June rate hike was not going to happen. The heaviest selling was again in the Dow Transports as Southwest Air (LUV) dropped 9% and Delta Airlines (DAL) was down 5.6%.

    Clearly the iShares Transportation Average (IYT) has not been the place to be this year as it is down 6.8% versus a 4% gain in the Spyder Trust (SPY). The weekly relative performance on IYT broke down in early April and it continues to plunge, signaling that it is still acting weaker than the S&P 500.

    Of course, there are other industry groups that have been even weaker than the Transports as the DJ US Gambling Index (DJUSCA) is down 18.1% over the past three months led by a 32% decline in Melco Crown Entertainment (MPEL). Of course, some stocks in the index have bucked the trend as Churchill Downs (CHDN) is up 18.8% over the past three months.

    So what other industry groups should investors continue to avoid?

     

     

    Click to Enlarge

    Chart Analysis: The DJ US Gambling Index (DJUSCA) peaked in early 2014 at 1096 and dropped to new lows in April 2014, which confirmed a new downtrend.

    • This pattern of lower highs, line a, is still intact as it was tested twice so far in 2015.
    • The index is now closer to next major support, line b, in the 629 area.
    • The weekly starc- band is at 588.
    • The weekly relative performance dropped below its WMA in March 2014.
    • The long-term uptrend, line c, was broken in July.
    • The RS line shows a well established downtrend, line d, and it is well below its declining WMA.
    • The weekly OBV broke its support, line e, in September 2014 but has been holding up better than prices.
    • There is first resistance now in the 670 area.

    The DJ Coal Index (DJUSCL) broke important support, line e, in July 2014, as it dropped below the 126 level. It is now almost 39% lower.

    • The weekly downtrend, line e, is clearly intact.
    • The recent rallies have failed at the 20-week EMA, which is now at 85.75.
    • The March low of 70.91 tested the daily starc- band.
    • The weekly relative performance dropped below its support, line g, two weeks before prices violated support.
    • The RS line is trying to bottom out but needs to first move through the downtrend, line h.
    • If this resistance is overcome, the RS then needs to surpass the early 2015 highs (see arrow).
    • The break of OBV support, line i, coincided with the violation of weekly chart support.
    • The OBV has been flat for the past few weeks.
    • There is first resistance at 87 with more important in the 96.30 area.

     

     

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    The DJ US Training and Employment (DJUSBE) has dropped 17.4% over the past three months, which has taken it back to the weekly support at line a.

    • The decline in the index is primarily due to weakness in some of the small special niche companies as the larger Manpower (MAN) is up 9.6% YTD.
    • The weekly starc- band is at 125.92 with more important support at 117.75, which was the October low.
    • The weekly relative performance dropped below its WMA in late April.
    • The RS line is now reaching more important support.
    • The weekly OBV looks more negative as it has dropped to new lows going back to October 2014.
    • The next important OBV support is at line d.
    • There is initial resistance now in the 138-140 area.

    The DJ US Railroads (DJUSRR) is down 12.7% YTD as the majority of holdings in the index are lower so far in 2014. For example, Kansas City Southern (KSU) is down 20.6% YTD.

    • The uptrend from the late 2012 lows, line e, was broken on March 20 (line 1).
    • The relative performance formed lower highs in February.
    • The RS line then broke support, line f, two weeks before the price support was broken.
    • The RS line has continued to drop sharply and the daily does not show any signs yet of bottoming.
    • The weekly on-balance-volume (OBV) also broke its support, line g, in March.
    • The volume has been heavy over the past ten weeks and the OBV is well below its declining WMA.
    • The declining 20-day EMA is at 1379 with further resistance in the 1400 area.

    What it Means: Though some of the stocks in even the weakest industry groups can outperform the S&P 500 in the long run, buying stocks in market leading groups will pay off more often.

    Of the four industry groups, DJ US Training and Employment (DJUSBE) looks like it has the best chance of bottoming out in 2015.

    How to Profit: No new recommendation.

    Tags: IYT, LUV, MPEL, KSU
    May 22 9:25 AM | Link | Comment!
  • More Trouble For The Gold Miners?

    It was a sloppy session for the stock market with most of the major averages showing minor losses. The exception was the 0.76% drop in the Dow Transportation Average. The market internals were slightly negative which does allow for a further pullback. There is initial support for the Spyder Trust (SPY) in the $211 area and the futures are flat ahead of the opening.

    The one exception to the quiet action was the gold miners as the Market Vectors Gold Miners (GDX) dropped 3.6%. The $36 dollar rally in the June Comex gold futures last week gave the bulls some hope, but a sharply lower close this week could reverse the sentiment. The gold futures are acting better than the miners but both are lower so far this week.

    When it comes to identifying a major low in any market, I have found it best to look at the monthly, weekly, and daily charts before establishing a new position. A review of these different time frames will determine whether there is technical evidence to suggest that this gold mining ETF has bottomed.

     

     

    Click to Enlarge

    Chart Analysis: The monthly chart of the Market Vectors Gold Miners (GDX) gives one a clear picture of the trend of the past five years.

    • The declining 20-month EMA is a significant barrier at $23.96.
    • The long-term downtrend from the 2011 high at $66.98 is now just above $26.
    • Last fall I discussed the bear flag formation in GDX that was completed by the break of support at line b.
    • The rebound in 2015 has just taken prices back to this resistance.
    • The monthly OBV made sharply lower lows (line d) in 2014 before a sharp rally.
    • The OBV rally in September 2014 just tested the declining WMA (see arrow).
    • Though the volume was impressive on the rally from the October lows, the OBV just reached long-term resistance at line c.
    • The OBV is still above its WMA.
    • There is monthly support at $18.46 which was the April low.

    The weekly chart of the Market Vectors Gold Miners (GDX) more clearly reveals the recent nine week rally that has just pushed prices above the 20-week EMA.

    • The rally high in January 2015 just took prices back to the 50-61.8% Fibonacci retracement resistance zone from the 2011 highs.
    • This is characteristic of a rebound within a major downtrend.
    • The quarterly pivot support is at $19.58 with the six week low at $19.20.
    • There is stronger weekly support, line e, in the $17.71 area.
    • The weekly starc- band is at $17.08.
    • The weekly OBV is still above its slightly rising WMA.
    • There is more important support at line g.
    • The weekly OBV has longer-term resistance at line f.
    • There is weekly resistance at $21.25 with the weekly starc+ band at $22.67.

     

     

    Click to Enlarge

    The daily chart of the Market Vectors Gold Miners (GDX) goes back to the August 2014 high of $27.63.

    • As I noted on the weekly chart, the January rally exceeded the major 50% resistance and tested the downtrend, line a.
    • The rally last week slightly broke above this downtrend (line a) before prices turned lower.
    • The 61.8% Fibonacci retracement resistance from the January high, line b, was tested.
    • The daily uptrend, line c, is now at $19.64 with the last swing low at $19.28.
    • The longer-term support, line d, is now at $17.64.
    • The rally in January just tested the long-term downtrend in the daily OBV, line a.
    • This resistance was tested again last week and volume did pick up on Tuesday's decline.
    • The OBV is still holding above its rising WMA.
    • A daily close back above the $21.25 area would be a short-term positive.

    What it Means: From the monthly chart of Market Vectors Gold Miners (GDX) it is clear that, so far, the rallies since the 2011 highs have been just rebounds within the long-term downtrend.

    There is no compelling evidence that a change has taken place since February (Silver and Gold: Bear Market Rally?) when the technical studies also indicated that the rebound was over. Both the miners and gold subsequently plunged into the mid-March lows.

    Therefore, I would not be a buyer until there are some long-term positive signs for the miners.

    How to Profit: No new recommendation.

    Tags: GDX, GLD
    May 21 5:44 AM | Link | Comment!
  • Will Healthcare And Biotech Propel Stocks Higher?

    Stocks continued to grind higher on Monday as both the Dow Industrials and S&P 500 closed at new highs again. More importantly, the S&P 500 and S&P 1500 A/D lines have turned sharply higher and are acting much stronger than prices. This is a sign that the stock market can still move significantly higher.

    The EuroZone markets were also sharply higher as the euro has turned lower, which made their exporters again more attractive. As noted in Are These Key Markets Changing Direction? there were signs over a week ago that the dollar was bottoming out. The Dax is currently trading above the prior two weeks' high so this week's close could be important.

    For much of this bull market, the healthcare stocks-including biotechnology-have been leading the market higher. Their recent strength suggests that they may now be ready for a move to new highs and two of our healthcare picks are still trying to convincingly complete their corrections.

     

     

    Click to Enlarge

    Chart Analysis: The daily chart of the Sector Select Health Care (XLV) shows the doji close last Friday above the downtrend, line a.

    • There is monthly pivot resistance now at $76.12.
    • The completion of the trading range from the March highs has upside targets in the $77-$79 area.
    • The monthly pivot at $72.61 was tested last week.
    • The daily relative performance has risen back above its WMA but is still below the resistance at line c.
    • The daily OBV does look stronger as it has already moved to new highs as resistance at line d, has been overcome.
    • Both the weekly RS and OBV studies are above their WMAs but have not yet made new highs.
    • The 20-day EMA is at $73.39 and has now turned higher.

    The iShares Nasdaq Biotechnology (IBB) was up over 1.3% Monday and has regained its former uptrend, line h, which had been broken in late April.

    • The daily downtrend, line g, is now in the $362.50 area with the last swing high at $368.25.
    • In March, the high was $374.97 with the monthly pivot resistance at $381.82.
    • The daily relative performance has been back above its WMA since May 8.
    • It needs to overcome the resistance at line i, to confirm that the correction is over.
    • The daily OBV shows a short-term bottom formation as it has turned up from its WMA and overcome short-term resistance.
    • Both the weekly OBV and RS lines are above their WMAs.
    • There is initial support at $351.39 with the monthly pivot at $34.17.

     

     

    Click to Enlarge

    DENTSPLY International (XRAY) appeared to have completed its continuation, lines a and b, five weeks ago, but, so far, it has not rallied sharply.

    • Initial weekly resistance at $52.96 and a close above $53.77 should signal upward acceleration.
    • The weekly starc+ band is at $55.74, which also corresponds to the monthly pivot resistance.
    • The upside targets from the flag formation are in the $58-$60 area.
    • There is important support and the quarterly pivot at $51.34-$49.89.
    • The weekly RS line has broken its short-term downtrend, line c, and is just barely above its WMA.
    • The weekly OBV is looking much weaker as it dropped sharply over the past few weeks.
    • The OBV is now well below its declining WMA so any rally needs to be watched closely.
    • The daily OBV is acting much stronger as it is back to the early May highs.

    Stryker Corp. (SYK) closed impressively above its downtrend, line e, five weeks ago as it hit a high of $97.44 before reversing sharply to the downside.

    • On the reversal, the quarterly pivot at $92.51 was violated with a low of $91.78.
    • There is resistance now at the recent highs with the quarterly pivot resistance at $98.86.
    • The weekly starc+ band is at $101.48.
    • The weekly relative performance tested long-term support, line f, four weeks ago before moving back above its WMA.
    • The weekly downtrend, line g, is now being tested and the OBV will look strong with a higher close this week.
    • The daily technical studies are positive.
    • There is initial support now at $94.88 with the rising 20-day EMA at $94.14.

    What it Means: A strong close in the healthcare and biotech stocks this week would be another bullish sign for the stock market. On the downside, a decisive break in XLV below the $70-$71 level would be a very negative, but that does not look likely at this time.

    As for DENTSPLY International (XRAY) and Stryker Corp. (SYK), they need to see some more impulsive action in the next few weeks to confirm a new uptrend.

    Portfolio Update: For Stryker Corp. (SYK) should be 50% long at $93.88 and 50% at $92.76, with a stop $91.47. Sell 1/3 at $103.77.

    For DENTSPLY International (XRAY) should be 50% long at $51.32 and 50% at $50.46. On a move above $53.80, raise the stop from $49.22 to $50.64. Sell 1/2 at $55.08 or better.

    Tags: XLV, IBB, XRAY, SYK
    May 20 3:11 PM | Link | Comment!
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