QQQQ AND SPY EXCEED CHANNEL TRENDLINES - SMH GIVES UP EARLY GAINS - GOLD HOLDS BREAKOUT ON WEEKLY CHART AND HITS RESISTANCE ON DAILY CHART - GOLD-DOLLAR RELATIONSHIP TURNS POSITIVE - SHANGHAI COMPOSITE LAGS OTHER BRIC COUNTRIES AND THE US

QQQQ AND SPY EXCEED CHANNEL TRENDLINES... Link for todays video. The Nasdaq 100 ETF (QQQQ) and S&P 500 ETF (SPY) were featured with rising price channels in the March 29th Market Message. These channels are still there, but charts 1 and 2 shows these ETFs exceeding their upper trendlines in the last two weeks. On the face of it, this simply affirms the uptrend and shows strength. Lurking under the surface, we have another overbought indication. As noted at the end of March, these overbought conditions are not necessarily bearish because securities can become overbought and remain overbought. Notice that RSI moved above 70 around March 9th and remained near 70 for six weeks. Stocks continued higher even though RSI became overbought the second week of March. While SPY and QQQQ certainly look ripe for a pullback, there are simply no signs of weakness on the price charts. Fridays low established the first support level to watch for signs of a short-term trend reversal within these larger rising price channels, which define the medium-term uptrend. A support break would argue for a correction of the February-April advance.

Chart 1

Chart 2

SMH GIVES UP EARLY GAINS... The Semiconductors HOLDRS (SMH) opened strong on Wednesday, but quickly gave up early gains and moved into negative territory. Even though the trading day is still young, traders should watch out for a possible outside reversal or bearish engulfing. Chart 3 shows SMH opening above its prior high and is currently trading below its prior low. The red candlestick is bigger than the prior white candlestick and a close below 29.85 would forge a bearish engulfing. With SMH up over 20% since early February, a pullback to broken resistance is quite possible. Also notice that the ETF consolidated in the 27.5-25.5 area to mark a possible support zone. Keep in mind that candlestick patterns and 1-2 day reversal patterns are short-term in nature. Moreover, the bigger trend remains up. Any weakness would be considered a pullback within a bigger uptrend.

Chart 3

GOLD HOLDS BREAKOUT ON WEEKLY CHART - HITS RESISTANCE ON DAILY CHART... The Gold ETF (GLD) has been moving higher since early February, but is running into resistance from the January high and 62% retracement this month. Chart 4 shows GLD with three price swings over the last eight months (blue dotted lines). The ETF advanced September to November, declined December to early February and advanced over the last two months. The first swing started before September. Even though the current swing is up, GLD is near a make-or-break level. Potential resistance in the 113 area stems from the 62% retracement and the January high. Potential resistance is not enough reason to turn bearish, but it does argue for a little caution near current levels. As far as the current upswing is concerned, the February trendline is the first level to watch and the late March low marks key support. Chart 5 shows a longer view of GLD and the importance of support from the late March low. A break below this level would clearly negate the wedge breakout.

Chart 4

Chart 5

GOLD-DOLLAR RELATIONSHIP TURNS POSITIVE... Gold and the Dollar normally enjoy an inverse relationship. One falls when the other rises and visa versa. This inverse relationship has changed since early February as both moved higher. Both gold and the Dollar are up in early trading on Wednesday. Chart 6 shows the Gold ETF (GLD), DB Dollar Bullish ETF (UUP) and Euro ETF (FXE). Notice how the Gold ETF moved higher as the Dollar ETF moved lower (Aug-Nov) and GLD ETF moved lower when the Dollar ETF turned up (Dec-Jan). This inverse relationship changed as both moved higher the last 2 1/2 months. PerfChart 6 shows the percentage change for these three since February 2. GLD is up 2.14%, UUP is up 1.98% and FXE is down 3.79%. We have seen short-term anomalies in the Gold/Dollar relationship, but a 2 1/2 month anomaly may be more significant. At the very least, strength in the Dollar and weakness in the Euro could be holding Gold back. If Gold is up when the Dollar is up, think what might happen if the Dollar reverses course. There are no signs of a break down in the dollar just yet though. Chart 7 shows UUP holding support in the 23.4 area over the last few weeks.

Chart 6

Chart 7

SHANGHAI COMPOSITE LAGS OTHER BRICS AND THE US... The BRIC countries are Brazil, Russia, India and China. The Brazilian Bovespa Index (BVSP), the Russian Trading System Index ($RTSI) and the India Bombay Index ($BSE) all recorded new 52-week highs earlier this month, but the Shanghai Composite ($SSEC) fell well short of its prior high and shows relative weakness. Chart 8 shows the Shanghai Composite hitting resistance near the 62% retracement the last two weeks and falling sharply on Monday. This sharp decline was in response to Fridays sharp decline in the US. After Mondays drop, the Shanghai Composite firmed at support on Tuesday and bounced back to 3033 on Wednesday. While the successful support test and bounce are positive, I remain concerned with relative weakness in Chinese stocks. A break below the support zone would be bearish and target a move below the September low.

Chart 8

In contrast to the Shanghai Composite, the next three charts show the Brazilian Bovespa Index, Russian Trading System Index and India Bombay Index with higher highs into 2010. These three remain in uptrends.

Chart 9

Chart 10

Chart 11

PerfChart 12 compares the performance of the BRIC indices and the S&P 500 since January 4th, 2010. The S&P 500 and the Russian Trading System Index are both up, but the other three are down for the year. The Brazilian Bovespa Index and India Bombay Index are down slightly, but the Shanghai Composite ($SSEC) is down substantially in 2010. Again, relative weakness is disconcerting and should be monitored.

Chart 12

The BRIC acronym was first coined in 2001 by Jim ONeil, an economist at Goldman Sachs. These countries represent some 40% of the worlds population, 25% of the worlds land mass and 15% of the world economybigger than the combined G7 economies by 2050. The G7 consists of France, Germany, Italy, Japan, the UK and the US. There are three ETFs that cover the BRIC countries: the iShares MSCI BRIC Index Fund (BKF), the Claymore/BNY BRIC ETF (EEB), and SPDR S&P BRIC 40 (BIK).