STOCKS SURGE AS MAJOR INDICES HOLD SUPPORT - TRANSPORTS HIT 52-WEEK HIGH - RAILS AND TRUCKERS LEAD TRANSPORTS - EURO SLIDES DESPITE LATEST BAILOUT - OIL MAINTAINS STRENGTH DESPITE STRONG GREENBACK - OIL CHALLENGES RESISTANCE AGAIN

STOCKS SURGE AS MAJOR INDEX ETFS HOLD SUPPORT ... Link for todays video. With stocks short-term oversold and many key indices near support zones, positive economic news spurred the bulls into action and stocks move sharply higher on Monday. The major index ETFs gained around 1.5% on the day with leadership coming from small-caps (IWM) and technology (QQQQ). Chart 1 shows the Nasdaq 100 ETF (QQQQ) firming at support with a white candlestick today. The ETF first moved above 49 in early April and has since been consolidating in this area the last three weeks. A break below support would argue for a deeper pullback towards broken resistance and the 50% retracement area. Chart 2 shows the Russell 2000 ETF (IWM) finding support around 72 with a 2.25% surge today. A surge over 2% is a big move, but it was not enough to fully erase Fridays losses. It was, however, enough to establish short-term support.

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TRANSPORTATION AVERAGE HITS NEW 52-WEEK HIGH... Spurred by strength in trucking and railroads, the Dow Transports surged to a new 52-week high on Monday. Chart 3 shows the Dow Transports holding support around 4600 the last three weeks and moving above 4800 today. The Average is up some 26% from its February low. It maybe overbought, but it is clearly strong and this bodes well for Dow Theory, provided the Dow Industrials follows suit with a higher high soon.

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RAILS AND TRUCKERS LEAD TRANSPORTS... Airlines are getting all the publicity today, but the real strength comes from truckers and railroads. Chart 4 shows the DJ Railroad Index ($DJUSRR) closing near its 52-week high. Chart 5 shows the DJ Trucking Index ($DJUSTK) breaking resistance in mid April and closing near its 52-week high today. Chart 6 shows the DJ Airline Index ($DJUSAR) in an uptrend, but well below its mid April high. Airlines are the weakest of these three transportation groups.

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EURO SLIDES DESPITE LATEST BAILOUT EFFORT... Even though the on-again off-again Greek bailout seems to be on-again, the Euro did not react positively and fell sharply again on Monday. Perhaps currency traders do not believe the deal will go through or perhaps there are fears of even more bailouts down the road. We can never know the exact reason, but we do know the Euro remains weak relative to the Dollar. Moreover, the Euro did not bounce on what appeared to be good news, which confirms underlying weakness. Chart 7 shows the Euro ETF (FXE) breaking back below 132 today. Applying some basic Elliott Wave analysis shows a five wave decline underway. FXE is currently in Wave 5, which subdivides into three waves. Impulse waves need 5 sub-waves so we could be in a fifth wave extension. This means there could still be Wave 4 and 5 down to complete the bigger wave 5. The pattern could also evolve into an ending diagonal, which looks like a falling wedge. Whatever the count, the overall trend is clearly down with FXE trading below the December trendline. RSI has been in the 20-60 zone since December and this zone defines the downtrend. Look for FXE to break resistance and RSI to break 50 to reverse this downtrend. The usual Elliott Wave disclaimers apply. Chart 8 shows the DB Dollar Bullish ETF (UUP) within a clear uptrend.

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OIL MAINTAINS STRENGTH DESPITE STRONG GREENBACK... The US Dollar Index ($USD) bottomed on November 25th and is up around 10% from its late November low. And guess what? West Texas Intermediate ($WTIC) is also up around 10% since November 25th. Yes, both the Dollar and oil are up around 10% since November 25th. Perfchart 9 shows these two with the S&P 500, gold and bonds. The S&P 500 is up around 7%, but the Gold-Continuous Futures ($GOLD) and the 30-year Treasury Bond ($USB) are down.

Chart 9

From Perfchart 9, it would appear that oil is ignoring the Dollar. However, it may be temporary. In his book, Intermarket Analysis, John Murphy notes:

Of the four financial markets used in intermarket work, the Dollar is the most difficult to fit into a consistent model. Long delays between trend changes in the Dollar and other markets are part of the reason for that.

This may explain the reason for gold holding steady and oil moving higher as the Dollar strengthens. In addition, and as noted by John before, most Dollar strength can be attributed to Euro weakness because the Euro makes up some 57% of the Dollar Index. Strength in oil is also related to continued strength in the stock market. A rising stock market indicates a strengthening economy and this means more demand for energy related products.

OIL CHALLENGES RESISTANCE AGAIN... Chart 10 the US Oil Fund ETF (USO) challenging resistance in the lows 40s for at least the third time in seven months. USO first hit this resistance zone in late October and again in early January. The trend since summer is up with a slightly rising channel, but USO has been stalling in the low 40s the last 4-5 weeks. Chart 11 shows daily bars with a flag breakout over the last three days. This surge reinforces the support zone in the 38-39 area. Even though USO is hitting resistance, the overall trend is up until there is a breakdown. This means it would take a break below this support zone to warrant a reassessment. Also notice how closely USO and the S&P 500 are tracking over the last few months. Continued strength in the stock market bodes well for oil. Chart 12 shows the US Gasoline Fund ETF (UGA) breaking above resistance and recording a new 52-week high today.

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GOLD ETF EDGES TOWARDS CHANNEL TRENDLINE ... Before moving on to gold, let me note reason gold was down on the perfchart shown above. Gold was down since November 25th because it was near the end of a sharp surge. Chart 13 shows the Gold ETF (GLD) around 116 on November 25th, which means gold was around $1160. Gold corrected as the Dollar rose in December-January, but divorced itself from the Dollar in early February and rose along with the greenback. On the price chart, GLD remains in a clear uptrend with a possible rising channel taking shape. The gray trendline (upper) is still tentative and should be considered potential resistance in the near future. The lower trendline is the most important because it defines the uptrend. Bullion bulls are in good shape as long as this trendline and the April reaction lows hold.

Chart 13