QQQQ HITS NEW HIGH FOR 2009 DOW CHALLENGES 8000 DOW TRANSPORTS SHRUG OFF SURGING OIL REIT ISHARES TESTS CONSOLIDATION RESISTANCE
QQQQ BREAKS 2009 HIGHS... News from around the globe brought buyers out in force on Thursday. First, the Financial Accounting Standards Board (FASB) announced new flexibility in mark-to-market accounting. Second, the G20 announced plans worth over $1 trillion to finance global trade and assist troubled countries. Chart 1 shows the Nasdaq 100 ETF (QQQQ) breaking above its January-February highs. The ETF gapped up today and closed at its highest (closing) level of the year. It is also possible that a double bottom is forming with resistance just below 32. Even though the ETF is on the verge of confirming this pattern with a breakout, it is also overbought again as the Commodity Channel Index (CCI) moved back above 100. QQQQ could certainly remain overbought and continue its advance, but risk of a pullback increases when securities are overbought.
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DIA SURGES OFF 50-DAY... I featured the Dow Industrials ETF (DIA) as it battled the 50-day moving average on Wednesday. With a strong close Wednesday and more gains today, the ETF further distanced itself from the 50-day moving average. Even though recent strength is encouraging, I can't help but see reasons for resistance. Sorry to be a party pooper. First, broken supports around 80 turn into resistance. This level is equivalent to 8000 on the Dow. Second, DIA retraced 62% of the prior decline and this key retracment can act as resistance. Third, the consolidation from late January to early February also acts as resistance. Finally, DIA is now up 23% from its March lows a mere four weeks ago. This makes it overbought by most yardsticks.
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TRANSPORTS HAVE BIG DAY... Despite oil moving sharply high on Thursday, the Dow Transports scored a big gain. Chart 4 shows West Texas Intermediate Crude ($WTIC) surging over 8% to finish above $52 per barrel. Perhaps the transports and oil are rising for the same reason: increasing demand. A surging stock market points to a strengthening economy, which means more demand for transportation services. More oil will be required to fuel this growth, which means more demand for oil. Chart 5 shows the Dow Transports surging over 7% with strength coming from rails, truckers and airlines. Notice that the chart for the Dow Transports has characteristics similar to the Dow Industrials. The Average surged above 2900 today and moved above broken support. The current advance, a whopping 27% in four weeks, retraced just over 50% of the prior decline. Even though there is no arguing with the power of this advance, the Dow Transports is also overbought and close to resistance.
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REITS SURGE TO RESISTANCE... REITS also had a big day, but the REIT iShares (IYR) fell short of a breakout. I featured this ETF last week with the same indicators. IYR surged in early March and then consolidated with a flat trading range the last 3-4 weeks. While the S&P 500 moved higher in the second half of March, IYR lagged by remaining range bound. The first indicator shows IYR relative to SPY. This relative strength comparative is still trending lower as IYR continues to underperform. The second indicator shows Aroon Up (green) and Aroon Down (red). Aroon Up crossed above Aroon Down in mid March, but the ETF has yet to break consolidation resistance. This week's surge is a start. Follow through above the March highs would be bullish and target further strength towards the January highs.
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