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Today’s Action Could Spark A Turn In This Sector

Posted by on Sep 16, 2015

Today’s Action Could Spark A Turn In This Sector

As we get closer to the FOMC announcement Thursday stock market investors are starting to look at which sectors and stocks look the best and which look the worst. The market was led higher Tuesday by the Dow Transports which were up 1.85%.

The daily relative performance analysis of the iShares Dow Jones Transportation (ETF) versus the Sypder Trust(SPY) indicated it had become a market leader on September 2nd. With last Friday’s close the weekly RS analysis for IYT has also completed its bottom formation. Typically when a stock or ETF becomes a market leader there will be a pullback in the following weeks which will present an additional good risk/reward entry point.

The A/D ratios were better than 2-1 positive and while the A/D line ratios have turned higher they have still not signaled that the market’s correction is over. The failure to overcome these levels over the past few months has kept us from aggressive buying

As part of the bottoming process a stock or sector will pullback after the initial rally and then traders will look for a trigger or spark to suggest that the rally is ready to resume. Crude oil is up in early trading and there is one energy sector ETF that I am watching for a new buy signal.

CP9-15

The daily chart of November crude oil shows that it hit a high of $49.33 at the end of August but has been consolidating for the past nine days.

  • Crude made a secondary correction low at $43.36 last week and it is trading $ higher early Wednesday.
  • The short term downtrend, line a, is now in the $46.20-$46.40 area.
  • A close above this level should signal a move to the $49-$50 area.
  • The monthly projected pivot resistance stands at $53.10
  • The volume increased Tuesday with the slightly higher close.
  • The daily on-balance-volume (OBV) is poised just below its WMA while the weekly is still negative.
  • The Herrick Payoff Index (HPI) as I noted several weeks ago has formed a longer term bullish divergence, line c.
  • The HPI is holding above the zero line so money flow is still positive and a move back above its WMA will generate a bullish trigger.

The SPDR S&P Oil & Gas (XOP) has pulled back 8.6% from the late August high of $38.59

  • The 20 day EMA is at $36.42 with the monthly pivot at $37.26.
  • The daily starc+ band is at $39.14 with monthly projected pivot resistance at $41.73.
  • The relative performance did not make a new low in the middle of August.
  • The RS line is below its WMA and needs to overcome the resistance at line d, to signal that it is a market leader.
  • The OBV flipped back above its WMA on Tuesday which is a positive sign.
  • A move in the OBV above the resistance at line d would be a stronger bullish sign.
  • There is initial support at $34.50 and then in the $33.80 area.

What to do? A positive close today will be a short term positive for both crude and XOP. The strength of a rally over the next few sessions will be important in determining whether they have made a short term low or more.

For specific entry and exit signals you can contact us at wentworthresearch@ gmail.com

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