39th Record S&P Close, But....

by Tom Aspray

Another record close in the S&P 500 on Monday at 1808.37 even though the intra-day high from November 29 at 1813.55 was not surpassed. This was the 39th new closing high for the year in the S&P 500 but from my perspective it was definitely not impressive.

The NYSE A/D numbers were neutral as the NYSE Composite did not make new highs and only 157 stocks made new 52-week highs. This is well below the October reading of 471, and at the November peak, there were 284 new highs on the NYSE. This is a sign that the market’s trend has weakened.

In the latest Week Ahead column, I provided my outlook for how the S&P 500 might close the year, basis a combination of technical and historical analysis. While the S&P 500 closed up 0.18% for the day and the KBW Bank index gained 0.27%, the broader NYSE Financial Index lost 0.98%. Today the Volker rule was scheduled to go in effect but that has been delayed by the impending snowstorm.

On a year to date (YTD) basis, the Select Sector SPDR Financial (XLF) is up 32.5% versus a 29.5% gain in the Spyder Trust (SPY). This makes it a market-leading sector in 2013 but does that mean that XLF or the major money center banks are still a buy now?

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Chart Analysis: The Spyder Trust (SPY) formed a doji on Monday with its close at $181.40, which was just above the prior closing high of $181.

• The intra-day high of $181.67 was just below the November 29 high of $181.75.
• The daily starc+ band is at $182.73 with the monthly projected monthly high at $186.16.
• A daily close below $181.16 will trigger a low close doji sell signal.
• The daily OBV has been rising for the past two days but did break support at line d last week.
• The OBV is still below both its WMA and the bearish divergence resistance at line c.
• Monday’s close was therefore accompanied by the 2nd negative divergence since the November highs.
• The S&P 500 Advance/Decline also has formed another negative divergence, line e, as it has just rallied back to its declining WMA.
• The A/D line also shows a pattern of lower lows.
• The 20-day EMA is at $179.39 with support also at $178.35.
• A decisive break of this level is likely to trigger a drop at least to the monthly projected support at $176.39.

The Select Sector SPDR Financial (XLF) staged a breakout in November as the resistance at line f, was overcome. This support in the $21 area was tested last week.

• There is resistance now at the recent high of $21.64, which corresponds to the quarterly R1 resistance.
• The daily relative performance is still in a downtrend, line h, after leading the S&P 500 from April through July.
• The RS does show a potential bottoming formation but the weekly RS (not shown) is still below its WMA.
• The daily OBV does act better as it made a new high on November 25 and is back above its flat WMA.
• The OBV did break through its resistance, line i, to confirm the price action.
• There is more important support at $20.06, which is the quarterly pivot.

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Citigroup C -0.08% Inc. (C) has kept pace with the XLF, so far in 2013, as the downtrend, line a, was overcome in November when it surged to a high of $53.98 and hit the starc+ band.

• The daily starc- band was tested last week and it is now at $50.28.
• The quarterly pivot is at $49.48 with the daily uptrend, line b, now at $48.94.
• The relative performance moved through its downtrend from the May highs (line c) in late November.
• The OBV did not confirm the upside breakout as it failed to move above the resistance at line d.
• The OBV closed Monday back above its WMA and well above the longer-term support at line e.
• The weekly OBV (not shown) did confirm the breakout in prices.
• There is near-term resistance now at $52-$53.

Bank of America BAC 0% (BAC) has done a bit better in 2013 than Citigroup Inc. (C) as it is up 34.5% versus 31.8%.

• The stock broke out of a four-month trading range, lines f and g, in November.
• The upside targets from the range at $15.20 and $16 have been met.
• The quarterly R1 resistance is at $16.14 with the weekly starc+ band at $16.27.
• The relative performance broke through strong resistance at line h, in November.
• The RS line has pulled back to its WMA but the weekly (not shown) is holding well above its WMA.
• The OBV has been acting strong as it has formed higher highs, line I, and is well above its rising WMA.
• The weekly OBV (not shown) also did confirm the new highs.
• The rising 20-day EMA is at $15.30 with the monthly projected support at $14.41.

What It Means: The further divergences in the daily technical studies increases the odds of a deeper correction over the next few weeks. The extent of the initial selling should give me a clearer idea of how deep a correction should be expected.

As for the financial sector including Citigroup Inc. (C) and Bank of America (BAC), I would not recommend new positions as we should get a better buying opportunity down the road. Of the two banks, Bank of America (BAC) is acting the best.

How to Profit: There are no strong buy signals yet in the inverse ETFs, like ProShares UltraShort S&P 500 (SDS), but they could come later today. Watch my Twitter feed for new recommendations.

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