DECEMBER STARTS DIFFERENT - IWM STALLS NEAR RESISTANCE - FINANCE SECTOR CONTINUES TO LAG - XLF STALLS AT NOVEMBER LOW - CITIGROUP AND BOFA FAIL TO INSPIRE - 30 YEAR BOND YIELD SURGES - 10 YEAR BOND YIELD HITS RESISTANCE
DECEMBER STARTS A LITTLE DIFFERENT... Link for todays video. December is shaping up a little different than the rest of the year. Chart 1 shows an Intermarket Perfchart from early March to the end of November. The S&P 500 ETF (SPY) is by far the best performer over this period. The Gold ETF (GLD) and the DB Commodity Index Tracking ETF (DBC) are a distant second, but both are up 27-30%. On the downside, the DB Dollar Bullish ETF (UUP) and the 20+ Year Treasury ETF (TLT) are down since stocks bottomed in early March.
Chart 1
Fast-forward to December and the results are different. Granted, we are only eight trading days into December, but there may be some change in the air. Chart 2 shows performance for the same intermarket players using a SharpChart. Only the lowly greenback is up month-to-date. Stocks (SPY), Bonds (TLT), Commodities (DBC) and Gold (GLD) are all down so far this month. Stocks are holding up the best, but strength in the Dollar is clearly weighing on commodities. In fact, the US Oil Fund ETF (USO), which is not shown here, is down over 10% this month.
Chart 2
IWM HITS RESISTANCE... The Russell 2000 ETF (IWM) and small-caps showed some resilience with a bounce to resistance in early December, but came under pressure Thursday afternoon. The S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQQ) were in positive territory throughout the day on Thursday, but IWM turned negative after two bouts of selling pressure Thursday afternoon. Chart 3 shows IWM forming a red candlestick as it failed to hold above 60 today. Candlesticks are red when the close is below the prior close. Candlesticks are filled when the close is below the prior open. This candlestick is red and filled. Overall, IWM edged above its triangle trendline last week and then stalled near its November high this week. This puts the ETF between a rock (breakout) and a hard place (resistance). A break above 61 would signal a continuation of the early December surge, while a break below last Thursdays low would be negative.
Chart 3
FINANCIALS STILL LAGGING... Relative weakness in the finance sector continues to weigh on the overall market. Chart 4 shows the Sector SPDR Perfchart over the last 65 days. Eight of the nine sectors are up, and up rather handsomely. The Financials SPDR (XLF), on the other hand, is the only sector showing a loss over this period. Not only is XLF lagging, but the ETF is also down since September 9th. Relative weakness in finance has yet to infect other key sectors though. Notice that the Technology SPDR (XLK), Consumer Discretionary SPDR (XLY) and Industrials SPDR (XLI) are outperforming the S&P 500. These three are easily outperforming the S&P 500 and showing relative strength. Finance may be a drag, but relative strength in these three is making up the difference. The balance would change if one or more of these sectors were to turn weak.
Chart 4
XLF BATTLES SUPPORT... XLF is been on our radar the last several weeks. First, XLF shows relative weakness because it failed to exceed its October high. Chart 5 also shows the price relative moving lower since mid October. This is the XLF:SPX ratio. The ratio increases when XLF advances more than SPX, and decreases when XLF declines more than SPX. To use this indicator, simply select PRICE in the indicator box and enter XLF:$SPX for PARAMETERS. It is obvious which way this indicator is currently moving (hint: down). Second, XLF formed a triangle consolidation and broke the lower trendline with a decline on Tuesday. The ETF then stalled near the late November low, which marks support. Overall, I think the bearish evidence currently outweighs the bullish evidence (relative weakness, lower high, triangle break).
Chart 5
BANK OF AMERICA AND CITIGROUP FAIL TO INSPIRE... Bank of America (BAC) made news last week when it announced plans to repay its TARP money. With this news, the stock opened strong and surged above 16.5 last Thursday morning. These gains proved fleeting as the stock closed weak on the day. Chart 6 shows BAC moving lower the last four days and breaking below its late November low. BAC (blue) has not been keeping pace with the S&P 500 (red) since late October and continues to show relative weakness. Wall Street is not very enthusiastic about this TARP payback.
Chart 6
Media reports are swirling that Citigroup may also raise capital to repay all or some of its TARP money. While it sounds like a noble idea, the money has to come from some place. A new stock offering would increase the number of share outstanding and dilute the value of current shares. Even though these reports are preliminary, Chart 7 shows the stock stalling between 3.75 and 4. Citigroup surged in August - and that was it. The stock peaked well ahead of the overall market and has been declining since early September. The indicator window shows Citigroup (blue) with the S&P 500. Citigroup also shows relative weakness as it fails to keep pace with the broader market.
Chart 7
TREASURY YIELDS RISE... Treasuries have been under selling pressure this week as the government sold $13 billion in 30 year bonds today. It is a classic supply-demand situation. The government announced the size of its offering (supply) and dealers put in their bids (demand). Relatively weak demand pushed the yield up and bond prices lower. In other words, dealers demanded a higher yield before coughing up their funds. Chart 8 shows the 30-year Treasury Yield ($TYX) breaking the big wedge with a surge in October and then pulling back in November. With another surge in December, the yield moved to its highest level since August.
Chart 8
Chart 9
Chart 9 shows the 10-Year Treasury Yield ($TNX) also rising in December and hitting resistance from the Sept-Nov highs. The 30-year Treasury Yield hit a three-month high, but the 10-Year Treasury Yield hit a resistance zone that extends back to September. Selling pressure appears to be greater in the 30-year than the 10-year. Perhaps this is because supply of 30-year bonds is increasing faster. A breakout at 3.6% (36 on the chart) would be bullish for interest rates and bearish for the 10-Year Treasury Note.
