2 key sectors top out
Materials and industrials look technically vulnerable, meaning investors should exercise caution and have tight stops in place.
- This high was well above the February high of $38.08 (point 1)
- The weekly on-balance volume (OBV) made its high in February but formed a lower high in May (point 2), just barely making it above its flat weighted moving average (WMA). This is a negative divergence consistent with a top formation
- The divergence has been confirmed this week, as the OBV has dropped below its prior low and is now in a downtrend
- The weekly OBV support at line b is well below current levels
- Support for XLI on the weekly chart is at $34.44 and the 40-week moving average (MA). Chart support from the 2010 highs is at $33.50
- The chart formation has initial downside targets at $34.50 with the 38.2% retracement support at $34.35. The 50% support is at $32.90
- The daily OBV did make a new high with prices, but I have found the weekly OBV to be more important when the weekly and daily disagree
- Daily OBV has also just turned down from its weighted moving average, and a break of support at line e should precede a break of price support
- Short-term resistance is now at $38.60 and then $39.00
- There is more important trend line support on the weekly chart at $37.45
- XLB is also below its 40-week MA, which has started to flatten out\
- The weekly OBV failed to confirm the new price highs, as indicated by line c, and it violated its uptrend (line d) this week. This is negative and suggests a drop below the March lows at $36.44
- The volume over the past two weeks has been heavy
- Support on the weekly chart from the May 2010 highs is at $35.47
- The next support on the daily chart is at $36.44, which is just above the 38.2% retracement support, as calculated from the summer 2010 lows
- The 50% retracement support is at $34.50
- The daily OBV shows a series of lower highs, line f, and it broke its uptrend (line g) in early May
- Last week’s bounce in XLB took the OBV back to its declining weighted moving average, which is a bearish formation. The OBV is already below the April lows and appears to be leading prices
Copyright © 2014 Microsoft. All rights reserved.
Remy Cointreau says it was 'adversely affected' by China's anti-extravagance policy.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.