The Nasdaq 100 ETF (QQQQ) closed down for the first time in nine weeks. I almost forgot what a red candle looked like! I'm joking of course, but that is a long run off a bear market low without a down week. With the beginning of May behind us (the beginning of a month is typically positive) the odds of a market correction are increasing. Historically, the month of May has ended many advances. That being said, most sectors don't look like the Nasdaq 100. They actually look very bullish with no sign of the uptrend ending. The Nasdaq 100 is heavily weighted in technology stocks and where the damage was done at the end of last week. One other sector that saw some selling and may be another sign of a kink in the market's armor was the Retailing sector (not shown). The symbol for the Retailing ETF is RTH.
The Financial sector ETF (XLF) was on fire last week in anticipation of the stress test report, which proved to be better than expected. Maybe news leaked, nah couldn't have. By week's end the sector formed a Bullish Wide Range Bar (+WRB), which came after several green bars (a +WRB after several green bars often occurs at the end of a move). While there are multiple green bars before that +WRB, the prior three weeks were a consolidation of green bars and a Bottoming Tail (BT) did form within that consolidation. Pristine Tip: Bottoming tails are a correction and rally in a lower time frame. A +WRB after a minor consolidation, rather than after a straight up move supports a continued bullish bias. This sector outperformed this week and certainly isn't showing signs of tiring like the QQQQ ETF.
Let's look at a few ETFs that have just moved from stage 1 to stage 2.
The Coal sector ETF (KOL) just broke out above resistance and has room to move higher. It does look like it should pullback or consolidate a bit on the daily time frame. But Patriot Coal Corp. (PCX) may be ready to move now. It recovered from Thursday's down day on Friday nicely.
The Agriculture sector ETF (MOO) also just broke out and has room to move higher. Potash (POT) is a stock in this sector and formed a BT on Friday after bearish bar on Thursday. Buyers are lurking below and that may be as far as POT is going to correct after its recent move higher.
The OIL ETF (USO) had the least convincing breakout, but it has closed above resistance. The Oil Service ETF (OIH) has been moving higher over the last few weeks and led the move in USO. Stocks in the Oil Service ETF can be found at http://finance.yahoo.com/q/hl?s=OIH .
It's clear from the breakouts in these three ETFs that money is flowing into commodity related stocks. This is a good long-term sign for the economy and the equity markets. Money is moving into these sectors based on a bias that the recession is nearing an end and better times are coming. Markets do anticipate the future and as technical investors and traders inter-market analysis is our guide.