NET NEW HIGHS APPROACH POSITIVE TERRITORY DIA BATTLES 50-DAY MOVING AVERAGE XLF AND RKH FORM CONSOLIDATIONS GLD PULLS BACK AFTER BIG SURGE VM WARE CHALLENGES RESISTANCE MEMC TESTS BREAKOUT BRISTOL MEYERS SURGES ON BIG VOLUME

NET NEW HIGHS APPROACHING ZERO... Net New Highs can help distinguish between bear market rallies and sustainable advances. First, let's review the Net New Highs indicator. I apply a 10-day simple moving average to smooth the data series. The market has a bullish bias when there are more new 52-week highs than new 52-week lows. The market has a bearish bias when there are more new 52-week lows than new 52-week highs. Sounds simple enough.

Chart 1 shows the Net New Highs indicator for the NYSE over the last 18 months, Chart 2 shows the indicator for the Nasdaq. The first deep move into negative territory occurred in November 2007. For the Nasdaq, this indicator has been negative since November 2007. For the NYSE, the indicator has been largely negative since November 2007 as well, but moved into positive territory in April-May 2008 (green oval). The blue dotted lines and blue arrows show when the indicator approached the zero line. Notice that bear market rallies ended as the indicator approached the zero line. In other words, the rallies were not strong enough for the 10-day SMA of Net New Highs to turn positive.

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With the massive March rally, the Net New Highs indicators are once again nearing the zero line. As it now stands, new 52-week lows and new 52-week highs are about equal. This marks the moment-of-truth for the rally. A bear market rally would likely end near current levels and the Net New Highs indicator would fail to turn positive. Should the Net New Highs indicators push into positive territory, the current rally would likely be more than just a bear market rally.

CHALLENGING THE 50-DAY LINES... When it comes to the major-index ETFs, not much has changed with the overall analysis. Stocks became overbought after a huge advance in March. There are two ways to work off overbought conditions: correct or consolidate. A correction would involve a retracement of the March rally. John Murphy laid out some retracement targets on Monday. A flat trading range or consolidation is the alternative. Right now a number of key ETFs are stalling near their 50-day moving averages. This stalling could be a prelude to a correction or consolidation period. The next three charts show the S&P 500 ETF (SPY), Dow Industrials ETF (DIA) and Russell 2000 ETF (IWM) all battling their 50-day moving averages. Prior battles took place in late December and early January. All three broke above their 50-day moving averages in December, but failed to hold above for more than two weeks. Eight days was the max for IWM. All three ETFs broke above their 50-day moving averages in late March. On a closing basis, DIA has held the 50-day line for eight days. However, trading turned quite choppy over the last seven days.

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FINANCIALS CONSOLIDATE AHEAD OF VOTE... The Financial Standards Accounting Board is set to vote 2-April on mark-to-market rules for financial firms. While I am not going to get into the mark-to-market debate here, it is something that could affect financial stocks in the coming days. Chart 6 shows the Financials SPDR (XLF) consolidating around its 50-day moving average the last two weeks. The ETF first surged above 9 on 18-March and has since bounced around this level for ten days. With a consolidation pattern is taking shape, traders should watch the boundaries for a break. XLF is no stranger to consolidation patterns, especially triangles. The ETF formed triangles in October, December and January-February. These triangle breaks led to substantial moves. The current consolidation is also starting to look like a triangle. An upside break would be bullish and argue for a move towards the next resistance zone (13-14). A downside break would be bearish and argue for a retracement of the March surge. Chart 7 shows the Regional Bank HOLDRS (RKH) with similar patterns.

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GOLD STALLS ABOVE SUPPORT... After a big surge off support in mid March, the Gold SPDR (GLD) pulled back and consolidated around 90. Chart 8 shows broken resistance levels at 87.5 turning into support, which was confirmed with the March lows. After the Fed's bold policy statement on 18-March, GLD surged above 92.5 with a big move. It was impressive, but GLD has yet to follow through to this surge. Instead, the ETF pulled back to the 50-day moving average. While many major stock indices are testing resistance from their falling 50-day moving averages, GLD is testing support from its rising 50-day moving average. Chart 9 shows a falling wedge taking shape on the 60-minute chart. These corrective patterns are potentially bullish. Notice that the wedge retraced around 62% of the prior surge (yellow area). I am marking wedge resistance at 92 and a break above this level would reverse the short-term decline.

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STOCKS MOVING ON GOOD VOLUME... The next three charts shows stocks making moves with good volume. Chart 10 shows Bristol Meyers Squibb (BMY) surging above consolidation resistance with strong volume the last three days. Chart 11 shows VM Ware (VMW) breaking above consolidation resistance with surging volume today. Goldman Sachs put out a positive note on the company today. Goldman clients probably moved into the stock with the big advance two weeks ago! Chart 12 shows MEMC Electronics (WFR) breaking triangle resistance with big volume last week. The stock pulled back to broken resistance and this level now acts a first support.

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