FALLING GASOLINE CAUSES ENERGY PROFIT-TAKING -- BOND YIELDS HIT ANOTHER FOUR-YEAR HIGH -- DOLLAR INDEX FALLS TO SEVEN-MONTH LOW -- NYSE ADVANCE-DECLINE LINE STARTS TO WEAKEN
FALLING GASOLINE PULLS XLE LOWER ... Earlier today I showed gasoline futures pulling back from overhead resistance at their summer highs. That caused profit-taking in energy shares. I also showed Exxon Mobil and ConocoPhillips pulling back from their September highs. Chart 1 shows the selling in the Energy SPDR (XLE). Although the XLE recently hit a new high, it has some other short-term problems to deal with. Its 9-day RSI line had reached overbought territory over 70. And it met resistance at its upper Bollinger band. That can be seen more closely in the %B indicator below the chart. The %B plots the Bollinger bands as an oscillator. A move to 1.00 means that it's touching the upper band. When that's combined with an overbought RSI reading, a pullback usually results. Notice also that the last two days of selling has come on rising volume. That makes a couple of distribution days and simply means that some folks are taking some profits. The first level of support to watch for the is 20-day moving average. Given the recent rises in most commodity markets (and their related stocks), they're entitled to a breather.
Chart 1
BOND YIELDS ARE STILL CLIMBING ... A strong consumer confidence number (and home sales) pushed bond prices sharply lower today and yields higher. As a result, the 10-year Treasury note yield hit a new four-year high. In my opinion, bond yields are also being pulled higher by the inflationary expectations built into rising commodity prices. I recently suggested that one way to take advantage of that rising trend was through the ProFunds Rising Rates 10 Fund shown in Chart 3. You'll notice that the two charts look very similar. They're supposed to. Another factor feeding inflation expectations is the falling dollar.
Chart 2
Chart 3
DOLLAR INDEX FALLS TO NEW 2006 LOW ... The next chart shows the U.S. Dollar Index falling to a new 2006 low. That sets the stage for a further drop toward last September's low near 86. Last Wednesday (April 19), I wrote that one way to profit from the falling dollar was to buy the ProFund Falling U.S. Dollar Fund. That fund is meant to move in the opposite direction of the Dollar Index. If you compare Charts 4 and 5, you'll see that's just what it's doing. The Rising Dollar Fund has hit a new seven-month high and is trading well above its 200-day moving average. That's an easy way to profit from a falling dollar.
Chart 4
Chart 5
S&P 500 SPDR PULLS BACK ON RISING VOLUME ... Although the trend of the S&P 500 SPDRS (SPY) is still up, there are a couple of minor negative points that might be worth watching. The first is simply the fact that the SPY sold off today on rising volume. The other has to do with two short-term negative divergences. The first one is seen on the Commodity Channel (CCI) line on top of Chart 6. Notice that its peak is lower than the one reached in March. That creates a negative divergence that is also seen on other short-term oscillators. The other has to do with the NYSE Advance-Decline line.
Chart 6
AD LINE SHOWS NEGATIVE DIVERGENCE ... One of our readers asked me to take another look at the NYSE Advance-Decline line and I did. What I saw was the the start of possible negative divergence. The green line in Chart 7 is the S&P 500 SPDRs. The red line is the NYSE Advance-Decline line. Since the market bottomed in the fourth quarter, the AD line has been leading it higher. That can be seen by the fact that the red line has been consistently higher than the green line. Over the last week, however, that pattern has changed. Although the S&P (green line) has reached a new high, the AD (red) line hasn't. It's not a lot to go on. But it's the first negative divergence that I've seen between the two lines. That suggests to me that the April move to new highs by most of the major stock indexes may be on shaky footing. The continuing climb in bond yields is part of the reason.
Chart 7
