EURO BOUNCES OFF PRIOR LOWS AS GREECE ACCEPTS AID - FALLING DOLLAR SPURS BUYING IN SILVER AND GOLD - OIL AND OIL-RELATED SHARES SURGE - BONDS TEST RESISTANCE AS FED CONSIDERS ASSET SALES - PERCENT OF STOCKS ABOVE 50-DAY LINES SURGES TO PRIOR HIGHS
EURO BOUNCES OFF PRIOR LOWS AS GREECE ACCEPTS AID... Link for todays video. Debt-laden Greece formally requested assistance from the EU and IMF. News of possible bailout to help Greece get through the year lifted the Euro. Chart 1 shows the Euro ETF (FXE) finding support near the prior low with a pretty good bounce on Friday. Todays news no doubt prompted some short covering and possibly some new buying, but the overall trend for the Euro remains down. As noted on Wednesday, there is a considerable resistance zone in the 136-138 area. In addition, it is possible that a Fan Line situation evolves with false starts over the next few weeks. It is possible to draw the second of three Fan lines now. RSI remains below 50-60 resistance, which has marked resistance throughout 2010. A break above 60 is needed to turn momentum bullish.
Chart 1
Chart 2 shows the DB Dollar Bullish ETF (UUP) opening strong and then moving lower. As todays price bar currently stands, an outside reversal pattern is forming. While this pattern is potentially short-term bearish, the overall trend for the greenback remains up. UUP is well above its key support zone around 23.4 and RSI remains above its support zone in the 40-50 area.
Chart 2
FALLING DOLLAR SPURS BUYING IN SILVER AND GOLD... Just a little strength in the Euro and a little weakness in the Dollar was all it took to spark a surge in gold. Chart 3 shows the Gold ETF (GLD) surging over 1% on Friday. The ETF has been trending higher since breaking trendline resistance with a surge to 110 in mid February. Todays bounce establishes first support at 110.5. Failure to hold todays surge would be a concern. Support for the current upswing remains in the 106-107 area. Chart 4 shows the Silver ETF (SLV) finding support near broken resistance and surging above 17.5 with a big move today.
Chart 3
Chart 4
OIL AND OIL-RELATED SHARES SURGE... Weakness in the Dollar is also fueling a rally in oil. Chart 5 shows the US Oil Fund ETF (USO) surging back above 40 over the last two days. USO broke above resistance at 40.5 at the beginning of the month, but fell back over the last few weeks. Todays surge keeps this breakout alive. Chart 6 shows the Energy SPDR (XLE) breaking above its resistance zone with a big surge today. Todays move also recorded a new 52-week high. John Murphy featured oil-related stocks this week and last week. In particular, John showed Chevron breaking to new highs last week and the Oil Service HOLDRs (OIH) breaking consolidation resistance on Tuesday. Chart 7 shows OIH breaking Diamond resistance with a big move the last four days.
Chart 5
Chart 6
Chart 7
BONDS TEST RESISTANCE AS FED CONSIDERS ASSET SALES... There are reports out today that suggest the Fed is considering selling some of its government and mortgage related assets. As part of its quantitative easing program, the Fed bought Treasuries, Mortgage assets and other securities to ease the strains on the financial system. The Fed must sell these at some point, the only question is when. Selling translates into supply that could weigh on the bond market. Also note that the FOMC meeting is next week. Chart 8 shows the 20+ Year Treasury ETF (TLT) hitting a familiar resistance zone around 91-92. This zone marked support in early November and then resistance from January to March. With a bounce the last three weeks, TLT is once again testing resistance in this area. A breakout at 92 would be bullish for bonds. TLT has support around 87-88 that extends back to the July-August lows. 2010 has been nothing but a trading range with TLT bouncing between 87 and 92 the last four months. Chart 9 shows the 7-10 Year Treasury ETF (IEF) hitting resistance in the 90-90.5 area for the fourth time since February.
Chart 8
Chart 9
It is also helpful to consult the 10-Year Treasury Yield ($TNX) for clues on the bond market. Interest rates move opposite the bond market. Rates rise when bonds fall and rates fall when bonds rise. Chart 10 shows the 10-Year Treasury Yield moving above 38 (3.8%) with a rather sharp advance the last two days. Incidentally, 10-year Greek bonds yield 9.5%, which is a 5.6% premium. The overall trend for interest rates is up as $TNX broke resistance in late December and held this breakout from January to March. The rally resumed with the March surge and the April decline looks like a correction. With todays surge, it looks like rates are headed higher and bonds lower.
Chart 10
PERCENT OF STOCKS ABOVE 50-DAY LINES SURGES TO PRIOR HIGHS... With the advance over the last two months, the percentage of stocks above their 50-day moving average surged back towards the prior highs. Chart 11 shows the percent of NYSE stocks above their 50-day moving average (%NYA50R) surging back above 85% for the first time since January. On the face of it, this is bullish because some 85% of NYSE stocks are above their 50-day SMAs. Prior surges occurred in April 2009, August 2009 and January 2010 (green dotted line). The first two surges above 85% foreshadowed a few more months of strength. The third surge above 85% (January) fizzled quite quickly as the market started a correction later that month. So what about this surge? It helps to think of this indicator like a momentum oscillator. As such, it can become overbought and remain overbought during a strong uptrend. While relatively high readings may be considered overbought, it is also as sign of strength as long as this indicator remains at high levels. The horizontal green line is set at 75%. This seems to be a threshold of sorts. There is no denying strength as long as 75% of stocks remain above their 50-day moving averages. A sharp decline below this level would increase the odds of a correction unfolding. One more observation: the indicator window shows the NY Composite with its 50-day SMA. Notice how crosses here coincide with crosses above/below the 50% threshold on the indicator. Chart 12 shows this same indicator for the Nasdaq ($NAA50R).
Chart 11
Chart 12
PERCENT OF STOCKS ABOVE 200-DAY LINES REMAINS HIGH... Chart 13 shows the percentage of NYSE stocks above their 200-day moving average ($NYA200R). This indicator has been above 50% since late May 2009. Incidentally, the NY Composite has also been above its 200-day SMA since late May 2009. The indicator peaked above 90% in September and is currently around 85%, which is below its September peak. Even though fewer stocks are above their 200-day moving averages, 85% is more than enough to sustain the current advance. More importantly, the indicator also remains in a two month uptrend with the recent move above the March high. There is no concern here unless the indicator turns down and moves below its late March low. Chart 14 shows the percentage of Nasdaq stocks above their 200-day moving average ($NAA200R).
Chart 13
Chart 14
