The iShares Dow Jones Transportation (IYT) tried to rally in early November, but turned lower from the resistance at $92.50. It continues to lag the Dow industrials. A close back above these highs is needed to turn it around
All sectors were hit pretty hard last week, with the Select Sector SPDR Financials (XLF) the weakest, down 2.8%. Next was the Select Sector SPDR Technology (XLK), which lost another 2.3%.
Since the June lows, the Select Sector SPDR Energy (XLE) is holding up the best, as it is still up over 12%...but has cut its gain almost in half from the September highs.
The performance of XLK dropped below SPY and XLV in early October, which warned of its recent weakness. XLK is now up just 4% from the June lows.
Even the more defensive Select Sector SPDR Health Care (XLV) was down over 2% last week. It was up over 16% in October, but is now up just over 10%. The weekly chart still looks positive,as XLV is still above its weekly uptrend (line b).
The weekly Starc- band is at $38.70 this week, with the highs from early 2012 at $38.
The relative performance is still making new highs, as health-care stocks are still outperforming the S&P 500. It shows no signs of topping out. The OBV will close the week below its WMA, but did not form any negative divergences art the recent highs.
The weekly chart shows the steady decline over the past eight weeks, but the prices are still in a broad trading range. There is major support (line e) in the $79 to $80 area and the weekly Starc- band.
The weekly OBV turned up this week, which is an encouraging sign, as it has held above its long-term support (line f). A move in the OBV above the resistance at line e would be a positive sign. The weekly chart has strong resistance now in the $93 to $95 area (line d).
My recommended buy levels were hit on the last decline. As I noted in the article, another pullback is possible over the next week that could provide another buying opportunity
The Week Ahead
Though I expected more selling two weeks ago, I was clearly not bearish enough on the short-term outlook. It is still my view that we could get a good buying opportunity in the latter part of the month, but keep your powder dry until we see some signs that the market is stabilizing.
The drop in the precious metals does appear to have been a buying opportunity, as the daily technical studies suggest the worst of the selling is over. This is the only asset class that I really like in the current environment.
There are some sectors that are holding up quite well, like the semiconductor sector, which typically bottoms at the end of October. However, the risk even in these sectors will be more manageable once the selling pressure subsides.
The sharp decline in the utility sector has taken us out of many of our higher-yielding stocks. I still think this will be a good place to be in early 2013, but it is best to wait on the sidelines until the dust settles.