Crosscurrents In The Markets

After Wednesday’s pullback, the market has relieved much of the oversold conditions and left many individual stock charts sitting on technical support. Despite the weakness, commodity and energy names remain in intermediate-term uptrends, with more attractive entries than yesterday. While overall market fundamentals and sustained weakness in financials give reason for caution, most sector ETF charts are in a bullish orientation. SPY (SPY) has good support here:

I am watching iShares Dow Jones US Real Estate (IYR) closely as a kind of bellwether. As long as sectors like real estate, homebuilders, retail, and transports show strength, we might as well ride the bullish wave as long as it lasts. IYR looks ready to break to the upside here. Should it break down instead, we would have evidence of changing market character.

- Industrial Select Sector SPDR ETF (XLI): Industrials have considerable support here.

- Retail HOLDRs ETF (RTH): The retail ETF is at a crossroads. A break above the 79.00 level should give it a leg higher.

- Consumer Discretionary SPDR ETF (XLY): The consumer discretionary ETF has already made a higher high.

- Atlas Pipeline Holdings (AHD): This gas pipeline company saw huge volume the past three days.

- USG (USG): Same thing here.

- United States Natural Gas ETF (UNG): The natural gas ETF is sitting near the lows, in a tight ascending trading range.

- Oil Services HOLDRs ETF (OIH) is providing a good entry here for a starter position, assuming no major gap up tomorrow morning.

- Applied Materials (AMAT): There are some good setups in semiconductors, especially those connected with alternative energy.

- MEMC Electronic Materials (WFR) looks ready to break out of this base.

As we look toward the latter half of the week, we have another jobs report on Friday to follow up on the employment data reported today. The overall scenario for consumer sectors, real estate, and financials remains grim, yet few stocks in these sectors are breaking down. As long as companies like Lennar (LEN), Nordstrom (JWN), and RadioShack (RSH) can defy reality and squeeze higher, we can rest more comfortably in our long positions, and be wary of shorts. The question remains how much longer these stocks can run.

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