5 ETFs Showing Short-Term Weakness

On Friday, the bulls managed to hang onto an increasingly slim advantage as the higher quality indices inched up and, for the moment, away from a break of their 20-day moving averages. The Nasdaq, however, did close below its 20-day moving average, thus triggering a technical analysis sell signal for traders. But even that signal is currently confined mostly to the metals and materials sectors for short-term traders. Of the internal indicators, momentum is the weakest, and the Nasdaq’s momentum indicator even closed in negative territory for the first time since Nov. 29. Sentiment numbers are still overbought by a wide margin. The Dow Jones Transportation Average fell again on Friday, after cracking its 20-day moving average earlier in the week. It closed just 15 points (0.02%) over its 50-day moving average. Further deterioration of this important index, which many believe to be a leading indicator, would create much uncertainty and a reevaluation by many of the ability of the broad market to maintain its positive trend. Conclusion: 1. The higher-quality stocks are still being bought, but even the vaunted S&P 500 had an 8-to-1 single-day punch on Wednesday, and that raised a caution flag among many technicians. Then, on Friday, the Nasdaq broke its 20-day moving average and the Dow transports continued to fall.  2. A study of ETFs shows definite weakness in the Market Vectors Coal ETF (NYSE: KOL ), Materials Select Sector SPDR (NYSE: XLB ) and SPDR S&P Metals & Mining (NYSE: XME ) — all leaders in the past three months. The Retail HOLDRs (AMEX: RTH ) and Financial Select Sector SPDR (NYSE: XLF ) turned north after touching their respective 20-day moving averages. Each, however, has internal indicators that are turning down. Weekly buying climaxes (indications of a near-term top, not a change in major trend) were reported by Dorsey Wright & Associates in most major indices and precious metals.  The overall picture, though still pointing up, is of a weakening stock market with limited technical damage done so far. But Wednesday’s beating, the worst since November, in the face of generally favorable economic news and solid corporate earnings is not a good sign.  It is time to watch and wait to see if a rotation of leadership occurs and the uptrend continues or if the indices continue to sag with more violations of the 50-day moving averages. For one tech stock to buy, see the Trade of the Day . Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .
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