SMALL-CAPS LEAD BROAD ADVANCE BONDS BREAK SUPPORT RATES BREAK RESISTANCE DOLLAR INDEX FORMS RISING FLAG EURO ETF BREAKS WEDGE TRENDLINE COMMODITY ETFS BOUNCE GOLD HITS TRENDLINE RESISTANCE

SMALL-CAPS LEAD BROAD ADVANCE... Stocks surged ahead of today's Fed meeting and held their gains after the policy statement. There were no surprises from of the Fed as the FOMC left the Fed Funds target at 0-.25%. Small-caps led the advance with the Russell 2000 ETF (IWM) gaining almost 4% on the day. Chart 1 shows IWM breaking above the channel trendline I drew last week. As the Rate-of-Change indicator in the bottom window shows, the ETF is now up over 40% in the last 7-8 weeks (36 days). Also notice that pullbacks have been limited to 1-2 days (red bars). Put another way, IWM has not declined more than two days straight since February. Wow! Even though IWM broke above my channel trendline with today's surge, I still consider the ETF overbought and vulnerable to a correction. In addition, we could see resistance soon from the January highs in the low 50s. Chart 2 shows the S&P 400 Midcap ETF (MDY) challenging resistance from the November-January highs. MDY is up almost 40% in the last 36 days and also looking overbought.

Chart 1

Chart 2

BONDS BREAK TO NEW LOWS... With the target Fed Funds rate essentially at zero percent, the only way to go is up. It is not a question of if, but when. The bond market appears to be betting that this "when" is going to be sooner rather than later. Bonds surged and rates declined after the Fed announced its program to purchase some $300 billion of Treasuries on 18-March. Despite this announcement, the surge in bonds was short-lived. Blame it on rising stocks and renewed confidence in the economy, both of which are putting upward pressure on interest rates. Chart 3 shows the 20+ Year T-Bond ETF (TLT) breaking below its February-March lows over the last two days. Chart 4 shows a mirror image with the 10-Year Note Yield ($TNX) breaking to its highest level of the year today.

Chart 3

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DOLLAR TAKES A HIT... The U.S. Dollar Index ($USD) is on the verge of a flag break after a sharp decline on Wednesday. Chart 5 shows the Dollar Index and the S&P 500 with three distinct movements this year. First, the Dollar surged while stocks fell in January and February. Second, stocks surged as the Dollar fell in early March (yellow area). Third, both the Dollar and stocks edged higher over the last 5-6 weeks. Even though the Dollar moved higher along with stocks, the pattern in the Dollar Index looks like a bearish flag. Notice that the Dollar Index declined sharply in early March. Such sharp declines are often followed by a recovery period or corrective bounce. In this case, a rising flag formed during April. Rising flags are bearish consolidations. A break below flag support would signal a continuation of the March decline. This would target a move to the next support area around the rising 200-day moving average.

Chart 5

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Chart 6 shows the US Dollar Bullish ETF (UUP) with a break below rising wedge support over the last few days. Chart 7 shows the Euro ETF (FXE) with a break above rising flag resistance. Despite these breaks, I could not help but notice that the Dollar Bullish ETF closed today its intraday high, while the Euro ETF closed near its intraday low. The breakouts are still holding, but the inability to close strong is something to watch over the next few days.

COMMODITY ETFS BOUNCE ... With weakness in the Dollar and strength in the stock market, commodities moved higher over the last few days. Inter-market relationships suggest that a weak Dollar is generally bullish for commodities. In addition, a rising stock market points to a strengthening economy, which in turn suggests increased demand for commodities. Chart 8 shows the Agriculture PowerShares ETF (DBA) with a move above the falling wedge trendline and 50-day moving average in mid March. The ETF stalled around the 50-day the last few weeks with a triangle taking shape. DBA edged above the triangle trendline today by gaining over 2%.

Chart 8

Chart 9 shows the Base Metals PowerShares ETF (DBB) with a break above resistance in early April. Broken resistance around 13 turned into support as the ETF bounced off this area with today's surge. The two week decline looks like a small wedge and today's surge reinforces support from the 50-day line.

Chart 9

OIL BOUNCES ALONG WITH STOCKS... Chart 10 shows the United States Oil Fund ETF (USO) bouncing back above its 50-day moving average today. Overall, the decline since late March looks like a falling flag, which is a potentially bullish consolidation. However, USO has yet to break above the upper trendline to reverse the flag's fall. At the very least, I would look for a move above 30 to undo last week's gap down, which has yet to be filled. Such a breakout would be bullish and target a move towards the next resistance area in the upper 30s.

Chart 10

GOLD CHALLENGES WEDGE RESISTANCE... Chart 11 shows the Gold SPDR (GLD) challenging resistance from the falling wedge trendline. I highlighted gold last week with this falling wedge on the daily chart and a large inverse head-and-shoulders on the weekly chart. Both patterns remain in play. The falling wedge on the daily chart amounts to the right shoulder on the weekly chart. GLD bounced off the 200-day twice in April and then met resistance at 90 this week. Even though the bounces off support at 85 look promising, a move above 90 is needed to break falling wedge resistance.

Chart 11

Chart 12