STOCKS RIDE THE ROLLERCOASTER SPY STALLS IN RESISTANCE ZONE QQQQ FORMS SPINNING TOP CANDLESTICK FINANCIAL ETFS REMAIN OVERBOUGHT REITS LAG THE MARKET DOLLAR TAKES A PUNCH GOLD BOUNCES ON DOLLAR WEAKNESS
WILD DAY FOR STOCKS... Stocks went on a wild ride Wednesday. The S&P 500 started strong with a 2% surge in the first hour, but weakened and declined sharply into the afternoon. A final-hour surge pushed the index back into positive territory to end with a modest gain - the hard way. Chart 1 shows four swings of at least 2% since yesterday at 1PM. A combination of overbought conditions and window dressing may explain choppy conditions. Stocks were overbought after big surges the last 2-3 weeks. However, some fund managers may have missed the rally and the first quarter will end soon. Portfolio window dressing refers to the process of buying stocks to show positions in quarterly reports. Fund managers that missed the big advance may be buying for this very reason.
Chart 1
SPY TURNS INDECISIVE... Chart 2 distills today's price action into a single candlestick. Using the S&P 500 ETF (SPY) in this example, a large spinning top formed on Wednesday. These candlesticks form with a small body (open-close), a long upper shadow (high) and a long lower shadow (low). Despite little change from open to close, there was a huge battle between the opening and closing bells. By the end of the day, neither the bulls nor the bears were able to gain control. As a result, the ETF closed with little to show since the open. Prior to today's spinning top, SPY formed a harami with the long white candlestick and smaller red candlestick. Harami also signal indecision and can sometimes foreshadow a short-term reversal. SPY was close to confirmation today, but rallied from the 50-day moving average to close back above 80.
Chart 2
SPY remains overbought and at resistance. First, SPY is hitting resistance from broken support levels. In addition, the current advance retraced 50-62% of the prior decline (Jan-Mar). This retracement zone can also act as resistance. The ETF is overbought because the 20-day CCI moved above 100 and remained above 100. In addition, SPY advanced over 20% from the March lows. A correction or consolidation is needed to work off overbought conditions before the next move higher can begin.
QQQQ STALLS AT RESISTANCE... Chart 3 shows the Nasdaq 100 ETF (QQQQ) with a harami and spinning top. Also notice that QQQQ is near resistance from the Jan-Feb highs. With a massive surge off the March lows, the ETF became overbought as CCI moved above 100. Securities can become overbought and remain overbought. This is the case as long as CCI remains above 100. A move back below 100 in CCI would signal the start of a correction or consolidation. The orange rectangles highlight prior occurrences when CCI moved back below 100.
Chart 3
FINANCIAL ETFS REMAIN OVERBOUGHT ... and at resistance. The Financials SPDR (XLF), Regional Bank HOLDRS (RKH) and Broker Dealer iShares (IAI) were featured with dark cloud patterns last Thursday. All three declined again on Friday, but surged above last week's highs with long white candlesticks on Monday. So far we have yet to see follow through to Monday's surge. Smaller red candlesticks formed on Tuesday to trace out harami patterns, while Wednesday marked a standoff between bulls and bears. As the charts below show, all three are trading near resistance and are overbought. The 20-day CCI is above 100 and all three are up substantially since early March. Even though the March surge was impressive, the odds of correction or consolidation remain high.
Chart 4
Chart 5
Chart 6
REITS LAGGING FINANCIALS... While finance-related stocks extended to new highs on Monday, the REIT iShares (IYR) remained relatively subdued with a consolidation. REITs are part of the financial sector, but they are not keeping pace with banks and brokers lately. Chart 7 shows IYR surging above 25 and then consolidating the last two weeks. The ETF met resistance from the falling 50-day moving average and late-February highs. A break above resistance would be bullish for this lagging group. The Aroon oscillator is hinting at a breakout with a bullish crossover this week. Aroon green is above Aroon red for the first time since mid January. Price action is foremost through. A break above the March highs is needed for confirmation.
Chart 7
DOLLAR TAKES A PUNCH... It was a wild day in the currency markets as well. The dollar suddenly dropped after Geithner failed to diffuse comments from China. Apparently, the governor of the People's Bank of China called for a new global currency to replace the dollar. While the chances of this are quite remote, Geithner's initial response did not adequately diffuse the issue and this sparked a sharp sell-off in the greenback. Dollar traders certainly have been jittery lately. Chart 8 shows the US Dollar Bullish ETF (UUP) plunging below 25.10 just before 10AM this morning. This sell-off did not last long as the ETF moved back above 25.10 by 11AM. So far the plunge looks like a fluke. A move back below today's low would suggest otherwise.
Chart 8
Chart 9
Chart 9 shows the US Dollar Bullish ETF firming near the 62% retracement mark, which resides around 25. This further reinforces 25 as a key level. After breaking support with a sharp decline last week, the ETF became oversold and consolidated the last 4 days. Watch the consolidation boundaries for clues on the next directional move.
GOLD HOLDS SUPPORT... Gold took advantage of dollar weakness with a modest advance today. Chart 10 shows the Gold SPDR (GLD) battling support around 87-90. Broken resistance turns into support at 87 and the rising 50-day moving average marks support around 90. GLD surged last Wednesday when the dollar swooned. Bullion also moved higher on dollar weakness today. It looks like the inverse relationship is back in fashion.
Chart 10
