The iShares Dow Jones Transportation (IYT) surged another 3% last week pushing the gain for the past two weeks close to 5%. With the Dow Transports at new all-time highs, many are worried that the Dow industrials have not yet made new highs.
I discussed this in detail last week as it is my opinion that this was not a problem for the near term. The Dow Industrial Average is now just about 2.2% below October 11, 2007 high of 14,198.
The Select Sector SPDR Energy (XLE) and Select Sector SPDR Consumer Discretionary (XLY) were two of the best performers again last week as they gained 1.7% and 2.1% respectively. I focused the seasonal tendency for crude oils to bottom in early February in my article Will This Be February's Hot Sector?. Though I was unable to buy the energy ETFs, there are several oil stocks in the portfolio.
The relative performance has not made new highs for the past few weeks, suggesting that the rally in XLF may be stalling. The OBV has just reached resistance at line b, but is still well below its September peak.
XLF fell short of my initial profit taking level at $17.56, but last Friday
before the close I tweeted to sell 1/3 of the position, which should have been
filled around $17.45.
The Select Sector SPDR Health Care (XLV) gained another 1.4% last week as it reached the weekly starc+ band with its high at $42.82. The upper trend line (line c) is now in the $44 area. Though the longer-term charts still show significant upside potential, the risk on the long side for the short term has increased with the impressive four-week rally.
The relative performance is above its WMA, but still below the highs from late 2012. A drop in the RS line below the previous low would be a short-term negative. The on-balance volume (OBV) did break out to new highs, overcoming resistance at line f. Our order to sell 1/3 at $42.78 was filled Friday.
The Select Sector SPDR Industrials (XLI) is also one of my favorite sectors and it was up 1.3% last week as were the Select Sector SPDR Utilities (XLU). The Select Sector SPDR Technology (XLK) was down slightly for the week.
The March crude oil contract closed above $96 last week and the technical outlook continues to be strong. There is some resistance in the $98 area with next major resistance at $100.
The metals had a rough week and look like they will continue to move lower this week as the technical action has turned more negative.
The SPDR Gold Trust (GLD) gapped below its short-term uptrend, line a, last week suggesting that the recent lows at $158.39 will be tested, if not broken. The volume increased on the decline and the OBV has turned lower after testing its downtrend, line b. There is strong resistance now in the $162-$164 area.
The Global X Silver Mines ETF (SIL) has also dropped below it support in the $21.58 area, line c, which is a very negative development. It suggests that the recent trading range was just a continuation pattern or a pause in the overall downtrend. Volume picked up late last week and the OBV has also dropped to new lows.
The Week Ahead
As I mentioned last time, now that the Spyder Trust (SPY) has reached the $150 area, I have become more cautious on the stock market. Though it is possible that stocks will accelerate to the upside this week, it is more likely, in my opinion, that we will see some selling come into the market. If we get a one-two day drop, it may be an early warning that the next rally will fail so now is the time to pay attention and have your stops in place.
Though I will continue to look for new stocks to buy, I will also be looking more closely at the current positions. And, even though I expect stock prices to be higher than they are now in the coming months, the bullish camp is getting a bit too crowded.
Once we do get a correction, it should provide good entry levels for some of the market leaders that we did not get a chance to buy before Christmas. I will be updating the "Charts in Play" portfolio early next week.
Don't forget to read Tom's latest Trading Lesson, Tracking the Market's Trend.