Could The Dow Jones Industrial Average Be A Victim Of Sector Rotation?

Market technician Dave Chojnacki of Street One Financial recaps Monday’s anemic market action and previews Tuesday’s moves, including an update on the major technical levels for the U.S. averages, as Technology continues to outperform.

Geopolitical events continue to be on investors’ minds as we progress through this holiday-shortened week. There were events all over the globe to cause concern, and sooner or later they will begin to impact the markets.

Equities opened to the upside on Monday, then reversed after an announcement that China moved 150K troops to the North Korean border. The averages stayed in a narrow range and remained choppy through the session after that.

Once again, we saw weak volume on a Monday, as the major indices finished slightly higher and little changed in the session. At the close, the DJIA added 1.9 points, the SPX inched up 1.6 points, and the NDX tacked on 3.3 points.

Breadth was positive, 2 to 1, on weak volume. ROC(10)’s were mixed, with the DJIA and SPX advancing and the NDX declining. All three remain in positive territory. RSI’s were little changed to the upside, with the NDX continuing to be the leader at 60. The DJIA and SPX are near 50.

All three major averages remain with their MACD below signal. The ARMS index ended the day at 1.15, a slightly bearish reading.

The DJIA and SPX have been in a narrow range since the beginning of March, and in an especially narrow range in the last 9 sessions. During this period, the SPX has traded between 2344 and 2378. We have noted on several occasions that they have traded around their 20 and 50D moving averages, specifically, DJIA: 20D-20719D, 50D-20615, SPX: 20D-2360, 50D-2348.

The NDX has diverged from the other major indices, as it has been slowly rising and making new highs recently. This suggests that we are in the process of sector rotation.

The VIX also diverged in yesterday’s session as it moved significantly higher on an up day in equities. It closed at 14.05, up 9.1%.

Near term support for the NDX is at 5404, 5400 and 5375. Near term resistance is at 5425 and 5450. Near term support for the SPX is at 2350 and 2348. Near term resistance is at 2360 and 2375.

U.S. Futures are mixed in the premarket Tuesday morning. The only major economic report on tap today is the JOLTS Job Openings at 10:00am.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) fell $0.22 (-0.11%) in premarket trading Tuesday. Year-to-date, DIA has gained 4.50%, versus a 5.28% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 74 ETFs in the Large Cap Value ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki

Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.

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