STOCKS FIRM AS FED STANDS PAT - S&P 500 AND NASDAQ FIND SUPPORT NEAR LAST WEEKS LOW - GOLD MINERS ETF SURGES TO THREE MONTH HIGH - PERFCHART REFLECTS WEAKNESS IN EUROPEAN PERIPHERY - SPAIN, ITALY AND PORTUGUESE INDICES BREAK DOWN

STOCKS FIRM AS FED STANDS PAT... Link for todays video. There were no surprises from the Fed today. After a two day meeting, the FOMC issued its policy statement at 2:15 today. Fed officials voted to keep the Fed Funds target rate in its current range (0 to 0.25%) and maintain low rates an extended period. All the fireworks were on Tuesday as the market firmed on Wednesday. Chart 1 shows the Dow Industrials finding support around 11000 over the last two weeks. The senior average bounced off 11000 last week and is again testing this level today. A break below the lows of the last two weeks would open the door to the next support level around 10700-10750. Support in this area stems from broken resistance and the 38% retracement mark.

Chart 1

The indicator window shows 14-day RSI moving from overbought levels to 50. Notice how the 40-50 zone acted as support from October to December. RSI broke below 40 as the Dow broke support at 1040 in mid January. This led to the Jan-Feb correction, which was the sharpest of the entire advance. Again, I will be watching RSI for a break below 40 that would turn momentum bearish and argue for a deeper correction.

S&P 500 AND NASDAQ FIND SUPPORT NEAR LAST WEEKS LOW... Chart 2 shows the S&P 500 with characteristics similar to the Dow. The index is finding support near last weeks low (1180). Tuesdays drop was dramatic, but the first support level has yet to be broken. RSI is also firming near 50. Look for a break below 1180 to signal a continuation lower that could target a move towards the 1150 area. Potential support here stems from the 38% retracement and broken resistance. Chart 3 shows the Nasdaq firming just above 2450, which marks the first support level.

Chart 2

Chart 3

GOLD MINERS ETF SURGES TO THREE MONTH HIGH... The Gold Miners ETF (GDX) is benefitting from a bounce in gold over the last few days. John Murphy pointed out an inverse head-and-shoulders pattern and successful neckline test in the gold ETF (GLD) yesterday. He also noted how strong gold was in Euros. Chart 4 shows GDX also partaking with a three month uptrend and three month high. There have been three swings over the last eight months. The current swing is up with support marked at 45.5.

Chart 4

PERFCHART REFLECTS WEAKNESS IN EUROPEAN PERIPHERY ... The debt crisis started with Greece and now appears to be spreading to other vulnerable countries in Europe. Cost estimates for a Greek bailout increased significantly after the S&P downgrade and Spains debt was downgraded by S&P today. Looks like S&P is tired of being behind the curve. Problems in the debt markets are also reflected in the equity markets as Portugal, Italy and Spain underperform Europe as a whole. Perfchart 5 shows 7-month performance for the FTSE Euro Top-100 Index ($EUR), the DJ Greece Index ($GRDOW), the DJ Spain Index ($ESDOW), the DJ Italy Index ($ITDOW) and the DJ Portugal Index ($PTDOW) since October. First, notice that the Greece Index peaked in October and started down first. Second, notice that the Euro Index is still in positive territory overall (+6.4%). Third, notice that the Spain Index, the Italy Index and the Portugal Index all moved into negative territory in January and did not turn positive in April. Performance has turned more negative the last 1-2 weeks and this bodes ill for the debt crisis.

Chart 5

SPAIN, ITALY AND PORTUGUESE INDICES BREAK DOWN ... Dow Jones has an index for just about everything you can imagine. Most of these indices update throughout the day. In other words, they are not indices that update at the end of the day (EOD), such as the Spain Bolsa 35 ($IBEX) and other country indices. This allows stockcharts.com users to follow price changes across the globe during the day. With that in mind, lets check in on the indices shown in the Perfchart above. Chart 6 shows the Euro Index with an uptrend similar to the S&P 500 over the last 13 months. Thanks to France, Germany and the Netherlands, the index hit a new reaction high in April and remains within the rising wedge.

Chart 6

The charts for the Greece Index, Spain Index, Portugal Index and Italy Index tell a different story. While the Euro Index hit a new reaction high in April, these four formed lower highs. Chart 7 shows the Greece Index peaking first and closing in on its March 2009 low. Chart 8 shows the Portugal Index breaking down over the last three weeks. Chart 9 shows the Spain Index with a pattern similar to Portugal. The index broke wedge support with a sharp decline the last few weeks. The final chart shows the Italy Index with lower highs over the last six months. Italy is holding up the best of the four. Recent breakdowns in Spain and Portugal, and relative weakness in Italy, are not good signs.

Chart 7

Chart 8

Chart 9

Chart 10

SHANGHAI COMPOSITE TESTS KEY SUPPORT LEVEL... The Shanghai Composite ($SSEC) continues to show relative weakness as the index formed a lower high and declined sharply over the last two weeks. I featured this index last week after the first decline. With another sharp move lower, chart 11 shows the other shoe dropping. Overall, it appears that the Shanghai Composite has support in the 2900-2950 area from the November-February lows. However, the breakdown over the last two weeks signals a continuation of the prior decline and this projects a move below support.

Chart 11

Chart 12 shows weekly bars over the last three years. After a sharp advance from October to July, the index formed a large triangle consolidation. With the decline over the last three weeks, the index broke below the lower trendline and exceeded the 52-week moving average for the first time since March 2009. This breakdown also looks rather bearish. As noted last week, China is part of the BRIC group of countries (Brazil, Russia, India, China). It is a large emerging market with tremendous growth potential. However, relative weakness in the Shanghai Composite and the recent breakdown are negative developments that need to be monitored for possible affects on the US markets.

Chart 12