SPY STALLS AT RESISTANCE - QQQQ REMAINS ABOVE 40-WEEK AVERAGE - GAS CONTINUES TO RISE - STRENGTH IN OIL BOOSTS ENERGY SECTOR - GOLD AND SILVER MOVE HIGHER - GOLD IS TOP INTER-MARKET PERFORMER FOR 2009
RANGE BOUND MARKET... Link for todays video.
May has been the month of churn in the stock market so it seems appropriate to step back and look at the bigger picture. After a huge advance from early March until early May, a little churning is actually quite normal. The bears get excited with every sharp decline, but the bulls revive with each ensuing bounce. In the past five days, we saw a gap down and sharp decline last Thursday and then a rousing advance on Tuesday. Last Thursdays gap fueled the bearish arguments, while Tuesdays big surge kept the bulls confident. At the end of the day, the sharp declines and ensuing bounces simply form a consolidation that frustrates both bulls and bears. Chart 1 shows SPY bouncing between 88 and 93 the last three weeks.
Chart 1
40-WEEK AVERAGES IN PLAY... Chart 2 shows weekly candlesticks for the S&P 500 ETF (SPY) over the last two years. The ETF plunged below 70 in March and rallied back to resistance by early May. Resistance stems from the 40-week SMA and the December-January highs. Incidentally, the 40-week moving average is equivalent to the 200-day moving average. What happens after the 2-3 week stall holds the key to the next move. A break above the May highs would signal a continuation higher. Conversely, a break below the May lows would argue for a retracement of the March-May advance. At this stage, the odds of a correction or pullback still look rather high as the ETF stalls at resistance.
Chart 2
Chart 3 shows the Dow Diamonds (DIA) stalling just below its 40-week moving average. Also notice that DIA is below its December-January high. With SPY challenging its Dec-Jan highs in May, DIA shows relative weakness because it is well below these highs. Chart 4 shows the Russell 2000 ETF (IWM) hitting resistance from the 40-week moving average and the January high. Even though small-caps (IWM) are keeping pace with large-caps (SPY), IWM is trading near stiff resistance and looks vulnerable to a correction.
Chart 3
Chart 4
QQQQ LEADS THE WAY... Chart 5 shows the Nasdaq 100 ETF (QQQQ) trading above its 40-week moving average. In fact, QQQQ is the only one trading above its 40-week moving average and its January high. This means that QQQQ shows relative strength. Even so, QQQQ stalled the first three weeks of May and then surged this week. With a strong advance thus far this week, QQQQ has a long white candlestick working for the week. This weeks surge reinforces the May lows as the first support level to watch for signs of a correction. Failure to hold this weeks surge and a break below these lows would be most negative.
Chart 5
OIL AND GAS CONTINUE UPTRENDS... The US Oil Fund ETF (USO) and the US Gasoline Fund ETF (UGA) furthered their uptrends with modest advances on Thursday. Chart 6 shows UGA breaking flag/wedge resistance in early May and moving above its 200-day moving average this week. The ETF is now up more than 80% from its January lows, which helps explain why prices at the pump have recently risen. Chart 7 shows USO moving above 35 with a nice gain on Thursday. In contrast to UGA, USO remains well below its 200-day moving average. In fact, the next resistance zone is in the upper 30s from the December-January highs.
Chart 6
Chart 7
STRENGTH OIL FUELS ENERGY SECTOR... With oil extending its uptrend, the Energy SPDR (XLE) led the market higher on Thursday. Chart 8 shows XLE challenging resistance from the Nov-May highs. Over the last several months, the ETF peaked between 50 and 53 at least once in November, December, January, February and May. This makes it one stiff resistance zone. After breaking triangle resistance in late April, the ETF surged to this resistance zone and consolidated the last few weeks. Another, and smaller, triangle is taking shape in May. In fact, I would label this a pennant formation, which represents a consolidation within an uptrend. A break above pennant resistance would signal a continuation higher and lead to a resistance breakout. The only negative is low volume on the late April surge and low upside volume the last few weeks. Chart 9 shows the Oil Service HOLDRs (OIH) with a breakout in late April and a pennant formation in May. With todays surge, the ETF is on the verge of a breakout that would signal a continuation of the April advance.
Chart 8
Chart 9
GOLD AND SILVER ADVANCE... Oil and gasoline were not the only commodities moving higher as the Gold ETF (GLD) and the Silver ETF (SLV) both moved higher on Thursday. Chart 10 shows GLD breaking wedge resistance in early May and challenging 95 this week. GLD is up over 10% since mid April and showing some upside leadership this year. The February high marks the next resistance zone just below 100 ($1000 for gold). Broken resistance and the October trendline mark the first support zone to watch. Chart 11 shows the Silver ETF (SLV) breaking wedge resistance in early May and moving above its February high this week. SLV is trading at its highest level of the year and actually leading GLD in 2009. This is interesting because silver is considered more of an industrial metal than gold.
Chart 10
Chart 11
INTER-MARKET LEADERS AND LAGGARDS... Chart 12 shows some of the major inter-market players in 2009. Year-to-date, the Gold ETF (GLD) is up the most with about a 9% gain. The Commodity Tracking Fund (DBC) is in second place with a gain greater than 7% and the S&P 500 is a distance third. Notice that the Dollar Bullish ETF (UUP) and the 20+ Year Treasury ETF (TLT) are both down for the year. TLT is down over 20% as bonds were hard over supply concerns from this years bond auctions. Weakness in the Dollar could be related to weakness bonds and expanding government debt. Rising debt levels give way to decreasing confidence in a governments bonds and currency. This could also be inflationary down the road, which could explain recent strength in gold.
Chart 12
