MARKET RALLY REMAINS STALLED HEADING INTO EASTER WEEKEND -- WAL MART HURTS DOW WHILE YAHOO BOOSTS INTERNET -- BOND YIELDS HEADED HIGHER
STILL IN OVERBOUGHT CONDITION... The stock market closed mixed on Thursday after opening higher. This is consistent with a market that's in a short-term overbought condition. On Wednesday, I showed the Nasdaq 100 in that condition. The S&P 500 looks pretty much the same. The S&P is backing off from its upper Bollinger Band with a stochastic reading over 80. That normally leads to some short-term profit-taking. The daily MACD lines, however, remain positive. Volume was noticeably light again, which is probably due to the fact that it was a holiday-shortened week. With more bad news coming from Iraq, it's also likely that short-term traders were reluctant to carry long positions into the long weekend. Very little has changed, however, in the broader picture. The worst of the market correction appears to be over. At best, the market may be in the early stages of a new upleg. At worst, the market may have entered a trading range between the highs and lows of the first quarter. While the Dow closed lower on Thursday, the Nasdaq managed a modest gain. That discrepancy is largely explained by the trends of two stocks -- Yahoo and Wal Mart. One went up and the other went down.
Chart 1
WAL MART PULLS DOW LOWER... Wal-Mart was symptomatic of a disappointing retail reaction to some upbeat numbers. Although same store sales were up for retailers, several of the stocks sold off. Because of its large size, Wal Mart was the biggest disappointment. Its daily chart shows the stock falling to a seven-week low on Thursday on rising volume. It's now testing its 200-day average. Its relative line is also starting to drop. The monthly bars in Chart 3 also show that WMT has fallen back below its recent breakout point at 60. Its recent move over 60 put the big retailer at a new 52-week high and appeared to break a four-year down trendline. This week's price drop puts it back below the breakout point.
Chart 2
Chart 3
YAHOO BOOSTS INTERNET ETF... A bullish earnings report pushed Yahoo to the highest level in more than three years -- and on monster volume. That gave a boost to the Nasdaq market and the Internet group in particular. It also helped make the AMEX Internet Holders the week's strongest sector ETF. I recently showed the Internet ETF moving up to challenge its January high. Thursday's high-volume gain pushed it to a new 52-week high. Its relative strength line (versus the Nasdaq) also broke out to the upside. Yahoo was a big reason for the Internet jump. YHOO has a 24% weighting in the Internet Holders, which is second only the eBay (33%) which recently hit a new high.
Chart 4
Chart 5
BOND YIELDS TURNING UP... Bond yields ended the week higher and appear to be ready to move even higher. Earlier in the week, I showed the 10-year T-note yields testing a four-year down trendline on a monthly chart. The weekly bars in Chart 6 also paint a picture of an emerging uptrend. Yields spiked higher last summer from June to August. Since then, they've been slanting lower in a "flag-like" pattern. As the chart shows, the 10-year yield is now moving up to challenge the trendline and its January peak near 4.25%. A close over that level would break the eight-month down trendline and would confirm that the trend of long-term trends has turned higher. The 14-week RSI line (along the top) has already moved over 50, and the weekly MACD lines are close to turning positive. It seems that the inflationary threat from rising commodity prices (including energy) and rising import prices are finally getting the attention of bond traders. That explains why rate sensitive stocks -- especially in housing and real estate -- were the week's weakest performers. A late-week bounce in oil prices made energy the week's strongest sector. That may have also accounted for some late selling in bonds and stocks.
Chart 6
