2 Under-the-Radar Weak Groups

05/09/2014 9:50 am EST


Thomas Aspray

, Professional Trader & Analyst

Keeping a close eye on the industry groups of the stocks that you own or those you are thinking of buying can help you avoid getting caught in sharp downdrafts like yesterday’s, says MoneyShow’s Tom Aspray.

It was another frustrating day for both bears and bulls. East Coast bulls who left just after noon felt pretty good as the S&P 500 traded above 1889 and made a new high for the week. The euphoria didn't last long as three hours later it was closer to 1870.

It clearly has been a tough few months for investors as the average hedge fund lost money for each of the past two months. Legendary trader Paul Tudor Jones was quoted in the WSJ as saying the trading environment was "as difficult as I've ever seen in my career." His key fund is reported to be down 4%, so far, in 2014.

The utilities have been the strongest sector in 2014, as the Sector Select Utilities (XLU) is up 13.9% for the year. As I noted last week, Is 2014's Hot Sector Ripe for Profit Taking?, the technical outlook did show a loss of upside momentum. It was down 1% Thursday.

Another market leader, the SPDR Oil & Gas Exploration (XOP) was also hit hard as it dropped 2.3%. This is consistent with the seasonal outlook for crude oil, which was why stops were tightened on Wednesday. The 1.8% drop in the iShares Nasdaq Biotechnology (IBB) is consistent with my view that a bottom has not yet been completed.

Though most of the market’s attention as been focused on the high-flying internet and biotech stocks, two of the weakest stock groups were flying under the radar until Whole Foods (WFM) plunged 19% in Wednesday’s session. The charts of these two groups show that investors had plenty of advance warning.

Click to Enlarge

Chart Analysis: The DJ Food Retail/Wholesale Index (DJUSFD) is down over 4% for the week as the index peaked in November at 276.21.

  • DJUSFD is now approaching the February lows and the weekly starc- band at 243.72.
  • The 38.2% Fibonacci support is a bit lower at 241 while the 50% support level is at 229.71.
  • The index had a low of 182.70 in the summer of 2012.
  • The relative performance broke its weekly uptrend, line a, in the middle of November.
  • This indicated that it was no longer a market leader and the RS line is now at new lows as support (line b) has been broken.
  • The weekly on-balance volume (OBV) dropped below its WMA in December.
  • The more important support at line c was violated in January and was just tested in last month’s rally.
  • There is initial resistance now in the 255-260 area.

Whole Food Market, Inc. (WFM) contributed a large amount to this week’s drop in the index but Sprouts Farmer Market Inc. (SFM) is down 17.9% and Fresh Market Inc. (TFM) has lost 14.4% this week.

  • The long-term weekly chart shows that support going back to 2012 (line d) has been broken this week.
  • The next support from late 2011 is in the $35-$36 area.
  • WFM is now trading below May’s monthly starc- band at $42.64.
  • The weekly chart shows a big price reversal the week ending November 8 and it reinforces why large weekly changes can be very important.
  • The weekly relative performance broke its uptrend, line e, the following week.
  • This was the start of a prolonged downtrend in the RS line as it has stayed below its WMA.
  • The OBV dropped below its uptrend, line f, in early December.
  • The rebounds to the declining WMA have been good selling opportunities such as what occurred on March 21 (see arrow).
  • The volume on Wednesday was almost 10 times the daily average.

NEXT PAGE: Another Weak Group to Watch


Click to Enlarge

The DJ Business Training & Employment Agencies Index (DJUSBE) is down almost 5.8% this week led. It has been led by Linkedin Corp. (LNKD), which is down 30.8% while Monster Worldwide Inc. (MWW) has lost 26.8%.

  • The weekly uptrend, line a, from the 2012 lows was first tested in early January.
  • This support was decisively broken in early February.
  • The weekly relative performance gave an early warning of a top as it dropped below its WMA in October.
  • By the middle of December, it was in a well-defined downtrend and the daily RS analysis was also negative.
  • The weekly OBV dropped below its WMA in early November.
  • The major OBV support, line c, was broken at the end of January.
  • The rally back to its WMA and the 20-week EMA in early March (see circle) was a good time to sell.
  • The daily OBV (not shown) is back above its WMA but there are no signs of a bottom yet from the weekly analysis.

What It Means: Keeping a close eye on the industry groups of the stocks that you own or those you are thinking of buying can help you avoid getting caught in situations like Whole Food Market, Inc. (WFM).

In addition to the sites mentioned in My Four Favorite Research Sites, Big Charts from Market Watch also has a good analysis of industry groups.

How to Profit: No new recommendation

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