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Chaikin Market Insights - May 11, 2014

|Includes: AMZN, DDD, XHB, Energy Select Sector SPDR ETF (XLE), XLP, XLU, XLY, XRT

Russell 2000 Below 200 Day Average - S&P 500 Nears All Time Highs…What does this Mean?

The S&P 500 Index closed at 1,878.48, down 0.2% on the week. The stock market continues to be on a divergent path with the Dow Jones Industrial Average and the S&P 500 Index at or near new highs, while the Russell 2000 small cap Index is below its 200 day average and the Nasdaq Composite continues to underperform.

The divergences are even more pronounced when we look at the internal numbers. As of Friday's close, the S&P 500 had 101 stocks with bullish Power Gauge ratings and 93 stocks with bearish ratings. If we look more closely at the Russell 2000 in terms of growth vs. value, we see clearly what is happening in the market.

The Russell 2000 Growth Index (NYSEARCA:IWO) had 134 stocks with bullish Power Gauge ratings and 334 with bearish ratings, while the spread in the Russell 2000 Value Index (NYSEARCA:IWN) was a more balanced 222 bullish, 230 bearish. What we are seeing is a shift from growth and high momentum stocks to value and higher yield stocks.

The likelihood is continued underperformance in the small cap sector, particularly the small cap growth stocks, with money flowing into large cap value oriented stocks. In this environment the S&P 500 could go to nominal new highs while the laggard segments of the market have tepid, reflex rallies.

Stay cautious, raising cash on rallies and avoiding bearish Power Gauge stocks.

ETF Sector Update

The SPDR Energy ETF (NYSEARCA:XLE), the SPDR Consumer Staples ETF (NYSEARCA:XLP) and the SPDR Utility ETF (NYSEARCA:XLU) led the market last week, reflecting the trends discussed above. I am unconvinced that the Retailers (NYSEARCA:XRT) or the Home Builders (NYSEARCA:XHB) will have significant rallies from here. Although both these groups are oversold, there is no technical evidence to support a bullish posture yet. Continue to use rallies to lighten up in the Consumer Discretionary sector (NYSEARCA:XLY).

Where are the Technical Support Levels for the Key Market Indexes?

We have been locked in a 1-½% trading range for the past 3 weeks on the major averages. Support is strong at 1,865 and a close below that level on the S&P 500 Index would likely lead to a decline to 1,790 - 1,810. A breakout above resistance at 1,895 would generate bullish headlines but would be a bear trap in my opinion.

This Week's Earnings Reports

We are discontinuing our listing of bullish and bearish Chaikin Power Gauge rated stocks due to report earnings in the coming week. These informational listings have not accomplished our purpose and appear to have created confusion amongst our readers.

Although bearish Power Gauge stocks are more likely to disappoint and bullish Power Gauge stocks are more likely to surprise favorably, price does not always follow suit. Company guidance and market psychology play big roles in determining how stocks react to earnings reports.

These listings were never intended to be buy or sell recommendations, although many have told us of taking outsized profits in some of these stocks when they did their homework on the technicals. Our bullish or bearish Stock of the Week is our official recommendation and we stand behind the superior track record of these ideas as second to none. Last week's two bearish ideas are just the latest in a string of profitable recommendations.

We will continue to highlight important stocks due to report, but do not take these as recommendations to buy or sell these stocks. You can see the companies in your My Stocks list which report earnings in the coming week in Portfolio Health Check, which is perhaps of more value to you.

In fact, if you are a Chaikin Analytics subscriber you can view stocks due to report earnings in the coming week, along with their Power Gauge ratings, by tapping on Up Coming Earnings Ideas in Chaikin Hot Lists. By drilling down on the list, you can see the price action of each stock and the other proprietary technical indicators and signals which can help point you to profitable trades during earnings season. Recap of Last Week's Bearish Picks

Recap of Last Week's Bearish Picks

Last week's bearish stock of the, 3D Systems Corp (NYSE:DDD), closed at 47.64 on Friday, down 2% for the week. It rallied to 50.85 giving you the chance to short DDD on strength as per our recommendation, before dropping to 45.42.

Our other bearish call, Whole Foods (WFM), dropped a breathtaking 22.5% to a low of 37.31 and closed the week at 39.32. The company reported shrinking same store sales growth and profit margins, reflecting price competition from grocers large and small. Whole Foods trades at a growth multiple of 25x earnings which may have been appropriate when the company was growing earnings at 20% a year, but seems excessive with the company reporting single digit earnings growth.

To read more of Marc's Weekly Insights, visit