DIA BOUNCES OFF SUPPORT - QQQQ SHOWS RELATIVE STRENGTH - MICROSOFT PACES PC STOCKS - THE MAY LOWS ARE HOLDING - XLV LEADS THE MARKET - LLY AND BMY BREAK OUT - FINANCE SECTOR STILL LAGGING - JPM AND WFC EDGE LOWER
DIA BOUNCES OFF SUPPORT... Chart 1 shows the Dow Diamonds (DIA) bouncing off support from the May lows with a bullish engulfing on Thursday. As DIA tested support, notice that the Commodity Channel Index (CCI) became oversold with the decline below 84. The combination of oversold conditions and support set the stage for todays advance. As noted in yesterdays market message, these May lows represent an important support test for the bulls. A weak bounce and subsequent break below support would fully reverse the uptrend that began in March.
Chart 1
QQQQ BREAKS FLAG RESISTANCE... While the S&P 500 ETF (SPY) and Dow Diamonds (DIA) came close to their May lows this week, the Nasdaq 100 ETF (QQQQ) held well above its May low. Relative to SPY and DIA, QQQQ showed relative strength this month. Chart 2 shows QQQQ breaking above flag resistance with a surge on Thursday. After becoming overbought (CCI>100) in late May, the ETF stalled in early June and then pulled back to broken resistance. Todays flag breakout reinforces support around 35. Failure to hold this surge and a move below 35 would call for a reassessment. CCI moved back above -100, but remains below its trendline and in negative territory. Look for CCI to break back into positive territory to turn momentum bullish again.
Chart 2
MICROSOFT LEADS TECHS HIGHER... Microsoft is poised to release its much-anticipated Windows 7 later this year. Wall Street, being the forward-looking beast that it is, appears to have high hopes for Windows 7. Chart 3 shows Microsoft (MSFT) surging in March-April, consolidating in May and surging again in June. In contrast, the S&P 500 is flat for the month. With a market capitalization around $210 billion, Microsoft still carries a lot of weigh, especially in tech-related indices and ETFs. It also appears that whats good for Microsoft is also good for some PC related stocks. Chart 4 shows Hewlett Packard (HPQ) breaking triangle resistance and holding strong in June. Chart 5 shows Dell (DELL) breaking triangle resistance and racing to a new reaction high this week. These three seem to be on the same page right now. Admittedly, all three are short-term overbought after big runs in June. Therefore, a consolidation or pullback may be in order over the next few weeks.
Chart 3
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Chart 5
Intel (INTC) and Advanced Micro Devices (AMD) also come to mind when considering PC related stocks. However, these two are not keeping pace with Microsoft, Dell or HP. Chart 6 shows Intel meeting resistance in early May and failing to break resistance in June. However, a small falling wedge formed over the last 2-3 weeks and Intel broke wedge resistance on Thursday. This could foreshadow challenges to the May-June highs. Chart 7 shows AMD with a sharp decline on high volume over the last two weeks. Also notice that the price relative broke its uptrend with a downturn in June. Despite this weakness, support could be at hand as the stock enters the yellow zone. This support stems from the April triangle and a 50% retracement of the March-June advance. The stock is trying to firm the last two days, but there is no evidence of a bounce just yet.
Chart 6
Chart 7
HEALTHCARE STOCKS REMAIN HEALTHY... Chart 8 shows the Healthcare SPDR (XLV) surging over 2% on Thursday. As can be expected, healthcare reform has taken center stage for the healthcare sector. For now, XLV likes what it hears from Washington because it forged a four month high today. Not many stocks or ETFs are trading above their May-June highs. This shows leadership. The indicator window shows the price relative breaking its February trendline last week. Chart 9 shows Eli Lilly (LLY) breaking channel resistance with a big move on big volume. Chart 10 shows Bristol Meyers (BMY) breaking triangle resistance last week and exceeding its May-June highs today.
Chart 8
Chart 9
Chart 10
XLF TESTS SUPPORT ... Chart 11 shows the Financials SPDR (XLF) testing support from the May lows over the last few days. After declining to support from the May lows on Monday, XLF pretty much stalled over the last three days. In fact, XLF has pretty much stalled the last two months. A break from this trading range will provide the next directional clue. As with XLY and other ETFs, support from the May lows holds the key for the bulls.
Chart 11
CHANNELS FOR JPM AND WFC... I am also watching the two biggest components for clues. Chart 12 shows Wells Fargo (WFC) with a falling channel over the last two months. Even though the decline is slight, the two month trend is down and a channel break is needed for a reversal. Chart 13 shows JP Morgan Chase Bear Stearns WaMu (JPM) with a falling channel as well. Their name is not really that long. I just decided to add on the last two acquisitions. By the way, Chase was also an acquisition by JP Morgan. In any case, the two month trend is down as long as the channel holds. At the very least, it would take a move above the mid June high to show strength.
Chart 12
Chart 13
Separately, but related, chart 14 shows the Regional Bank SPDR (KRE) forming a bullish engulfing on Thursday. Volume was also pretty good. Even so, the overall trend remains down as the ETF traces out a falling wedge. Follow through above 19.5 would break the wedge trendline and confirm the bullish engulfing.
Chart 14
