Have the Transports and Healthcare Topped?

10/15/2014 10:40 am EST

Focus: ETFs

Thomas Aspray

, Professional Trader & Analyst

As the market decline has picked up steam, transports and healthcare have also been hit by selling, so MoneyShow's Tom Aspray examines the weekly and daily charts to determine if the long-term outlook for these two market leading sectors has changed.

The stock market tried to rally once more on Tuesday but again the rally fizzled in late trading. There are further signs that the market is getting sold out at least on a short-term basis as the major indices have reached their lower starc- bands over the past two days.

The McClellan Oscillator has turned higher and is now at -138. Monday's low at -212 was above the September 25 low of -244. Therefore, the bullish divergence is still intact but it needs a move above the zero line to suggest that we have formed a bottom. The Spyder Trust (SPY) has first resistance now at $190-$191 with the declining 20-day EMA at $193.97.

As the market decline has picked up steam, two of the market leading sectors, transports and healthcare have also been hit by selling as Gilead Sciences (GILD) was down over 4% on Tuesday. The airline stocks have been hit hard on Ebola fears but they rebounded nicely Tuesday with Southwest Airlines (LUV) up close to 4%.

A review of the weekly and daily charts can help you determine whether the long-term outlook for these two market leading sectors has changed.

chart
Click to Enlarge

Chart Analysis: The iShares Dow Jones Transportation (IYT) as of last Friday's close was down 9.2% from its high at $156.28.

  • The weekly starc- band has been violated over the past two weeks and IYT formed a doji last week.
  • The weekly uptrend, line a, was also tested.
  • A weekly close above $144.31 will trigger a high close doji buy signal.
  • The weekly relative performance did confirm the recent highs before dropping below its WMA.
  • The RS line has turned up and has so far held above the stronger support at line b.
  • The weekly OBV dropped below its WMA at the end of September but did confirm the recent highs.
  • The trendline support for the OBV, line c, has been broken.
  • The 20-week EMA is at $146.87 with the quarterly pivot at $149.70, representing stronger weekly resistance.

The daily chart of the iShares Dow Jones Transportation (IYT) more clearly shows the price plunge of the past seven days.

  • The uptrend from the 2014 lows, line e, was broken last Friday.
  • The support from the April highs, line d, in the $140 area has now been reached.
  • There is additional support from the early 2014 highs in the $135 area.
  • The daily relative performance did confirm the September 19 highs.
  • It dropped below its support, line g, on October 7.
  • The RS line is now well below its downtrend, line f.
  • The Aspray's OBV Trigger (AOT) confirmed its sell signal on October 6 (see arrow).
  • There is initial daily resistance at $144 with the declining 20-day EMA at $146.60.

NEXT PAGE: Another Healthcare ETF to Watch

|pagebreak|

chart
Click to Enlarge

The Sector Select SPDR Health Care (XLV) is down 2.7% from last week's high as it lost 0.73% on Tuesday.
  • XLV has now dropped below its 20-week EMA at $62.15.
  • The weekly starc- band at $61.15 and the uptrend (line b) at $60.74 were both violated Tuesday.
  • The weekly relative performance broke through major resistance in September.
  • The RS line is rising sharply, consistent with a market leader.
  • The weekly on-balance volume (OBV) failed to surpass the July high in early October.
  • A decline below support at line f, would confirm the negative divergence.
  • A weekly close above last week's high at $64.91 would be positive.

The daily chart of the Sector Select SPDR Health Care (XLV) shows that the daily starc- band has been tested over the past two days.

  • XLV came close to its quarterly pivot of $60.50 on Tuesday.
  • The August low was $59.73 (line g), which is 2.2% below Tuesday's close.
  • The daily RS line made a new high last week but has now dropped below its WMA.
  • There is additional support at line h.
  • The daily OBV dropped below its support, line i, at the end of September.
  • The daily OBV has plunged below the June lows in the past few days as the volume has been heavy.
  • The OBV is now well below its declining WMA.
  • There is first resistance now at $62.56 with the declining 20-day EMA at $63.37.
  • The monthly pivot is at $64.05.

What it Means: There are no signs yet of a completed top formation in the iShares Dow Jones Transportation (IYT). The daily studies are negative but the current decline should be a buying opportunity.

The Sector Select SPDR Health Care (XLV) has had quite a run since it staged a major breakout in 2012. If the weekly negative divergence in the OBV is confirmed, it would signal a more significant correction.

How to Profit: No new recommendation.

Related Articles on ETFs

Keyword Image
The Omen
12/07/2017 10:50 am EST

The probability of an equity market correction over the next few months is slim to none, so there co...