Art's Charts

Charts Worth Watching

Arthur Hill

Arthur Hill

Chief Technical Strategist, TrendInvestorPro.com

Charts Worth Watching: SPY, DIA, IWM, XLB, XRT AND IYT.


Another update will be posted by 12PM ET on Tuesday (26-May). This will include the stock setups and the video.

  
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The major index ETFs are showing signs of weakness as a potential correction unfolds. These ETFs include the Dow Diamonds (DIA), the Russell 2000 ETF (IWM) and the S&P 500 ETF (SPY). First, let's back up to early May. After a big advance from early March to early May, the major index ETFs were overbought and ripe for a correction. There are two ways to correct after a sharp advance: trade flat with a consolidation or decline with a retracement of the prior advance. The SPY chart shows a sharp pullback the second week of May and then a bounce early last week. With this bounce fizzling out below the early May peak, a lower high is taking shape in SPY. This reflects a relatively weak bounce. Moreover, notice that DIA, IWM and SPY all gapped lower on Thursday – and these gaps are holding. Evidence points to further correction that could retrace 38-62% of the March-May advance.
  
090527spy
  
090527dia
  
090527iwm  
  
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There are also signs of weakness emerging in some key sector and industry ETFs. The Materials SPDR (XLB) formed a bearish engulfing in early May. After a bounce back to resistance from the engulfing pattern, the ETF formed a shooting star and gapped down last week. XLB stalled near trendline support on Friday, but selling pressure is emerging and a trendline break would argue for a correction of the March-May advance. 
  
090527xlb
  
The Retail SPDR (XRT) was hit hard in early May with a sharp decline below 26. The ETF rebounded last week, but did not manage to reach its prior high. This lower high reflects a weak bounce. A bearish flag took shape and the ETF broke flag support with a gap down last Thursday. The gap and flag break are short-term bearish as long as they hold.
  
090527xrt
  
The Transport ETF (IYT) chart has characteristics similar to XRT. Notice that IYT broke channel support with a sharp decline in early May. The bounce retraced around 50% of this decline with a rising flag. IYT broke flag support with a gap down last Thursday. This signals a continuation of the early May decline. The indicator window shows the price relative breaking down over the last two weeks. IYT is showing relative weakness.
  
090527iyt  
  

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More