QQQQ HOLDS BREAKOUT DEFENSIVE SECTORS LAGGING GOLD BOUNCES OFF SUPPORT GOLD MINERS SETS TESTS 200-DAY - GOLD ADVANCES AS DOLLAR FALLS UUP FORMS RISING WEDGE FXE FORMS FALLING WEDGE DOLLAR STILL UP FOR THE YEAR
A TALE OF TWO MARKETS... Life revolves around the January highs for many stocks, indices and ETFs. Those trading above their January highs are leaders showing relative strength. Those trading below their January highs are the laggards showing less strength. Chart 2 shows the Nasdaq 100 ETF (QQQQ) trading above its January highs the last two weeks. QQQQ and the technology sector show relative strength. In contrast to QQQQ, Chart 1 shows the S&P 500 ETF (SPY) trading well below its January high. SPY is meeting resistance from the early-February high and November trend line. We can also see differences relative to their moving averages. QQQQ is close to its 200-day moving average and its 50-day moving average turned up in April. SPY remains well below its 200-day moving average and its 50-day moving average flatten in April. Even though SPY surged over the last six weeks, this broad market ETF is still lagging QQQQ and the tech sector.
Chart 1
Chart 2
DEFENSIVE SECTORS UNDERPERFORMING... Using Sector Perfcharts, I divided the six-week rally into two halves to show changes in sector performance. Chart 3 shows a Sector Perfchart covering the first half of the six-week rally, which extends from March 6th to March 30th. Chart 4 shows a Sector Perfchart covering the second half, which extends from March 30th until April 22nd. Both halves are approximately three weeks. A few observations are in order. First, the S&P 500 advanced twice as much in the first half (15.24% versus 7.11%). This tells up that upside momentum is not as strong, which is hardly surprising after a 15% advance. Second, the financial sector led the advance in both halves, but cooled its heels somewhat in the second half. Third, the technology sector underperformed SPY in the first half and outperformed SPY in the second half. XLK is the only sector SPDR that exceeded its January high. This shows relative strength.
Chart 3
Chart 4
The fourth and final point revolves around the defensive sectors, which underperformed in the first 3-week period and the second 3-week period. This is also not surprising with the bulls moving into offensive mode. Defensive sectors include energy, consumer staples, healthcare and utilities. Even though the defensive sectors lagged in the first half, they still put up respectable gains from March 6th to 30th. However, performance soured significantly in the second half. While the S&P 500 was up just over 7% in the second half, the Healthcare SPDR (XLV) was negative and the Utilities SPDR (XLU) barely stayed positive. The Energy SPDR (XLE) and the Consumer Staples SPDR (XLP) were up less than 3%. These four sectors are weighing on broad market indices like the S&P 500, which helps explain relative weakness in SPY relative to QQQQ.
GOLD EXTENDS GAINS... I featured the Gold SPDR (GLD) on Monday morning as it bounced off its 200-day moving average. The ETF furthered its bounce today with a move above last week's high. Chart 5 shows weekly prices with a large inverse head-and-shoulders pattern (potential). This pattern is still just a potential head-and-shoulders pattern because it has yet to be confirmed with a break above neckline resistance. Chart 6 shows daily bars with a falling wedge that formed an ABC correction, which is a pattern from Elliott Wave. GLD found support from its 200-day moving average and the 50% retracement mark twice this month. This week's surge (four days) is the biggest four-day advance since February. The wedge trend line and 50-day moving average combine to mark the next resistance hurdle around 90-91. Resistance on the weekly chart stands around 99-100, which equates to $980-1000 for gold.
Chart 5
Chart 6
GOLD MINERS ETF BOUNCES OFF 200-DAY... The Gold Miners ETF (GDX) is also getting a bounce off the 200-day moving average. However, in contrast to GLD, the 200-day moving average for the Gold Miners ETF (GDX) is actually falling. The 200-day moving average for GLD has a slight rise since mid February, whereas the 200-day for GDX slopes down from mid February. Chart 7 shows GDX with support around 31 from the January channel trend line and the March lows. A higher low could be taking shape here in April as the ETF attempts to bounce. Failure to hold this week's bounce and a move below 30 would be most negative.
Chart 7
DOLLAR AND GOLD RESUME INVERSE RELATIONSHIP... The inverse relationship between gold and the dollar has been strained the last few months, but got back on track the last few days. Chart 8 shows the Gold SPDR (GLD) and the US Dollar Bullish ETF (UUP) over the last four days. Notice that GLD advanced from 86.25 to 89 (+3.1%), while the US Dollar Bullish ETF (UUP) declined from 26 to 25.55 (-1.7%). I had some positive comments for the greenback on Monday as the US Dollar Bullish ETF surged to 26. Mr. Market promptly put me in my place as UUP failed at resistance and declined sharply the least three days. Chart 9 shows a rising wedge taking shape and further weakness below wedge support would be bearish for the dollar. Chart 10 shows the Euro ETF (FXE) with a mirror image. A falling wedge formed over the last few weeks and FXE found support near broken resistance. A wedge breakout would be bullish for the euro.
Chart 8
Chart 9
Chart 10
Before dismissing the dollar too soon, keep in mind that the US Dollar Bullish ETF (UUP) is still up for the year. In fact, of the five intermarket ETFs shown on Chart 11, UUP shows the biggest gains year-to-date. The Gold SPDR (GLD) is also in positive territory, but the bonds, stocks and commodities are in negative territory year-to-date. Even with an explosive rally the last six weeks, SPY remains down for the year.
Chart 11
