QQQQ EXCEEDS JANUARY HIGH - SEMIS LEAD TECHS - INTC HITS RESISTANCE - AMAT TESTS SUPPORT - FINANCE SECTOR CHALLENGES RESISTANCE - C AND WFC SURGE - DOW INDUSTRIALS STALLS BELOW JANUARY HIGH - SHANGHAI COMPOSITE STALLS AT BROKEN SUPPORT
QQQQ EXCEEDS JANUARY HIGH... Link for todays video. Stocks moved higher again on Wednesday with the Nasdaq 100 ETF (QQQQ) joining the list of ETFs breaking their January high. The move above the January high forges a new 52-week high for this big tech ETF. The last 52-week high occurred in late December when QQQQ broke above its November high. Relative to the S&P 500 ETF (SPY), QQQQ has been all over the place the last few months. The indicator window in chart 1 shows the price relative (QQQQ:SPY ratio). QQQQ outperforms when this ratio rises and underperforms when this ratio falls. There was a performance breakout in late December, but then a performance breakdown in January. QQQQ is again outperforming with the surge over the last five weeks. A closer inspection of the price relative reveals relative weakness just prior to the January top and relative strength just prior to the February bottom. The red arrow shows the price relative peaking at the end of December and QQQQ declining two weeks later. The green arrow shows the price relative bottoming at the end of January and QQQQ surging a week later. The price relative is currently moving up and has yet to produce a potentially predictive divergence.
Chart 1
SEMIS LEAD BIG TECHS HIGHER... Strength in the semiconductor group helped the technology sector and QQQQ on Wednesday. Chart 2 shows the Semiconductors HOLDRS (SMH) moving above 27 with a 2.09% gain. After forging a new 52-week high in early January, SMH was hit quite hard in January-February. The ETF is trading well off its February low, but remains well below its January high. In this regard, SMH is still lagging the overall market (as measured by the S&P 500). Nevertheless, the uptrend over the last five weeks remains in place. It would take a break below the late February lows to call for a reassessment.
Chart 2
Within the Semiconductors HOLDRS, chart 3 shows Intel (INTC), which is the biggest component (30%), challenging its January high with a surge above 21 today. Chart 4 shows Applied Materials (AMAT), which is the second biggest component (26%), testing support from its November-February lows. Intel and Applied Materials appear to be on different pages. To be fair, Intel is a semiconductor manufacturer and Applied Materials provides equipment to the semiconductor manufacturers.
Chart 3
Chart 4
FINANCE SECTOR CHALLENGES RESISTANCE... Although sector gains on Wednesday were rather modest, the Financials SPDR (XLF) led the way higher as the only one to gain more than 1%. Chart 5 shows XLF surging from support to resistance over the last five weeks. It has been a great run, but there is no denying resistance extending all the way back to the September highs. XLF was short-term oversold and at support in early February. Now it is short-term overbought and at resistance, which is just the opposite. We do not need a momentum oscillator to figure out XLF is overbought. It is up around 15% in four weeks. A quick look confirms that RSI moved above 70 today, the Stochastic Oscillator is above 80 and the Commodity Channel Index (CCI) is above +100. Overbought is not necessarily bearish. It just increases the odds of a pullback or consolidation.
Chart 5
Within the Financials SPDR, chart 6 shows Citigroup (C) breaking resistance and surging above its January high this week. Citigroup, which is 27% owned by Uncle Sam, plans to issue $2 billion worth of TruPS securities. Investors appear pleased with this possible fund raiser. Chart 7 shows Wells Fargo Corp (WFC) surging through triangle resistance with a big move over the last two weeks.
Chart 6
Chart 7
DOW INDUSTRIALS STALLS BELOW JANUARY HIGH... While many major indices moved above their January highs, there are still a couple of hold outs. The Nasdaq, Nasdaq 100, Russell 2000 and S&P 400 MidCap Index exceeded their January highs, but the S&P 500, the Dow Industrials and the NY Composite have yet to follow suit. Chart 8 shows the Dow Industrials stalling just below its January high over the last three days. After surging on Friday, the senior Average stalled just below 10600 over the last three days. It is just a short-term stall within an uptrend, but this non-confirmation should be watched. John Murphy featured the Dow Transports breaking their January high on Tuesday. According to Dow Theory, the Averages need to confirm one another. Failure to confirm would signal weakness within the uptrend. It would not be a Dow Theory sell signal though. That would require BOTH Averages to break below their February lows.
Chart 8
SHANGHAI COMPOSITE STALLS AT BROKEN SUPPORT... I am still keeping a close eye on the Shanghai Composite ($SSEC). Behind Japan, China represents the third largest economy in the world. In fact, China may have already passed Japan. It is not a matter of if, but when. The bottom indicator in chart 9 shows the Shanghai Composite with the S&P 500. Shanghai bottomed ahead of the S&P 500 and has currently peaked ahead of the S&P 500. Even though the S&P 500 has yet break down, relative weakness in this key Chinese index is a concern. On the price portion, the Shanghai Composite hit resistance around 3500 in July and around 3350 in November for a lower high. With a sharp decline in January, the index broke the trendline extending up from October 2008. This is negative, but the index managed to firm the last few weeks. It is possible that a symmetrical triangle is taking shape here.
Chart 9
Chart 10 shows daily bars for more detail. Note that the market was closed for Chinese New Year in mid February. Incidentally, 2010 is the (lunar) year of the Tiger. The Shanghai Composite broke support with a sharp decline in January and broken support turns into resistance. Also notice that the move to 3100 retraced 50% of the January decline. Right now the five week trend is up as MACD remains above its signal line. A move below the signal line would indicate that prices are turning lower again.
Chart 10
