Market Internal Checkup: Technical

The market action in the past few days has been very frustrating. I started my yesterday with a very optimistic view that I can place a good trade on in Yamana Gold (AUY). The Transport ($TRAN) open strong but failed to confirm the bullish trend under the Dow Theory bullish signal. Thus I search for more sign of the market. I tuned to CNBC and Bloomberg but neither one offer anything useful. What I found useful was going back to the 50% principle. Think of a lever where you push down. Once the object pass above the halfway point, 50%, it becomes easier to move to the top.

The same theory can be said for the market. Although not proven scientifically, market technician use this as the critical level.

Warning: The analysis below is rather technical so take it easy!

Sector Analysis

Semiconductor (Semi)

If there's a leading indicator for our Economy, I would say it is Semi. The producers and suppliers of Semi will receive orders long before the true upturn arrives so it is wise to look at Semi before looking at Technology as a whole. The charts below shows Semi is failing at the 38.2% retracement. Failure to get above the 50% retracement is not a good sign for a recovery.

Technology

The Apple, Microsoft, Dell, or RIM of the world purchase semiconductor to put in to their devices. As a result, Semi turn up before technology as a whole. Take a look at the chart below. You'll see that technology retested the low in March while the Semi made a higher low! This is fundamental analysis plotted to the chart. The tech sector is strong, but not strong enough to break above 50% mark. This is a bearish signal.

Consumer Discretionary (things you don't need)

This index contain holding of Amazon, Comcast, and Home Depot. In simple term, they represent things you do not need. If the economy is turning, you will see an upturn in this sector. You can see below that the discretionary is still weak. Not getting above 50% mark is not a good sign.

Consumer Staple (things you do need)

This index contain holding of Altria (domestic cigarette maker), Coca Cola, Colgate, and Procter & Gamble. No need to explain to you the sector. Regardless, you need to shower and brush your teeth everyday. Strangely, the chart is a bullish one. The sector easily got above its 50% mark and is sustaining above that level.

Financial

How can I talk about the market without the Financial. You heard the story of Citi going from $1 to $3 or BofA going from $4 to $10. It's a great cocktail talk. The chart below is also one I find intriguing. Seeing how the financial sector is, I can't believe that it hasn't even break above the 38.2% retracement. This sector is by far the weakest of all.

Transportation

Last of the sector I will cover is the transport. Analyst claim that this is dead and is no longer an indicator of our economy. I hate to say it but they are wrong! Most of the stuff we buy from Safeway, Walmart, Lucky's, or Costco are coming from China. After product arrives on a ship, transportation by either trucks or trains are required. This chart is very compelling. The transport did break above the 50% mark but fail to stay there. I am optimistic, but I must wait for the market to tell me to be bullish.

 

Summary

The 50% principal is important to understand. A failure to break above that mark should signal a further decline. Before anyone claim or believe that this is another "bull" market going forward, I would have to wait and see that this market can break above such critical level. It may be true that from March low up until now is a bull market, but will it be going forward? Only charts and time can tell.

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