ECONOMIC DATA LIFTS STOCKS AND SINKS BONDS -- MATERIALS, ENERGY AND INDUSTRIALS LEAD THE CHARGE -- HEALTHCARE SPDR SURGES ABOVE RESISTANCE -- BMY, PFE AND STJ LEAD HEALTHCARE SECTOR -- GOOGLE AND AMAZON POWER INTERNET ETF HIGHER
ECONOMIC DATA LIFTS STOCKS AND SINKS BONDS... Link for todays video. Stocks started the day on a strong note after ADP Employer Services reported that companies added 42,000 jobs in July. The bulls were further bolstered with the ISM Services Index coming in well above 50 to show continued economic expansion. The news is not really important here. After all, this news is already history. Instead, the markets reaction to the news is important. The market is rising on good news and this is positive. Trouble starts when/if the market falls on good news. Mr Market will have two more news related chances with more employment related reports on Thursday and Friday. Turning to the technicals, chart 1 shows the Russell 2000 ETF (IWM) breaking above its wedge trendline in late July and holding above this trendline the last eight days. After gapping above 66 on Monday morning, the ETF has been trading flat the last three days. Mondays gap is holding, but the ETF has yet to build on this gap. IWM must be waiting for something later this week. Mondays gap and last weeks low combine to mark an important support zone to watch. This applies to many of the major index ETFs. A move below last weeks low would fill the gap and break support. This would also negate the trendline break. The breakout is holding until proven otherwise with such a failure. The indicator window shows the IWM:SPY ratio, which reflects the relative performance of small-caps. The price relative broke its trendline and then pulled back. Another surge is needed to put small-caps back in the drivers seat.
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Chart 1
Bonds reacted the opposite of stocks today. Chart 2 shows the 20+ Year T-Bond ETF (TLT) moving lower for the second time this week. Strength in the economy takes pressure off the Fed to keep interest rates low. The Fed Funds rate is near 0% and the Fed has promised to keep rates low for an extended period of time during this period of unusual uncertainty. Despite the Fed talk, TLT moved lower on the prospects of economic growth. TLT has yet to break support and this weeks employment reports could make or break this support level.
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Chart 2
MATERIALS, ENERGY AND INDUSTRIALS LEAD MARKET... PerfChart 3 shows relative performance for the nine sector SPDRs since June 30th. Relative performance is different from absolute performance. While absolute performance shows the actual gain/loss, relative performance shows the gain/loss relative to the S&P 500. All sectors are up since early July. Those with gains greater than the S&P 500 are outperforming. Those with gains less than the S&P 500 are underperforming. Industrials, materials and energy are outperforming because they show the largest positive relative performance. Consumer staples, healthcare and finance are underperforming because they have the largest negative performance. This is not the ideal leadership picture for a broad market rally. Ideally, consumer discretionary, technology and finance would show upside leadership. Relative weakness in these three key groups is a concern.
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Chart 3
HEALTHCARE SPDR SURGES ABOVE RESISTANCE... The healthcare sector has been lagging the broader market since early July, but the Healthcare SPDR (XLV) shows signs of life with a surge over the last four days. Chart 4 shows XLV finding support around 28 from mid May until late July. With at least five tests in the 28 area, there is clearly a demand base here. After an intraday reversal on Friday, the ETF gapped higher on Monday and broke the internal trendline extending down from the March high. This is an internal trendline because it cuts through the mid April high. In addition to this trendline break, the ETF broke above the mid July high. Relative to the S&P 500, the ETF still shows relative weakness since early July. The price relative turned up recently and further strength would break the red trendline extending down from the July high.
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Chart 4
BMY, PFE AND STJ LEAD HEALTHCARE SECTOR... Chart 5 shows Bristol Meyers Squibb (BMY) breaking above its July high with a surge above 26 today. The stock surged in June and then consolidated for six weeks. Todays breakout started with a gap on Monday. Chart 6 shows Pfizer (PFE) with a positive reaction to earnings and a huge gap on Tuesday. The stock is getting short-term overbought, but the next medium-term resistance zone is around 17.25-17.50. Chart 7 shows St Jude Medical (STJ) with a gap and breakout over the last three days.
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Chart 5
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Chart 6
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Chart 7
GOOGLE AND AMAZON POWER INTERNET ETF HIGHER... Big moves in Google (GOOG) and Amazon (AMZN) pushed the Internet ETF (FDN) above its June high. Chart 8 shows Google (GOOG) breaking above resistance and exceeding 500 for the first time since mid June. Google led the market lower from April to early July. The stock also lagged the market in the second half of July. Todays breakout is an effort to make up for lost time. Chart 9 shows Amazon (AMZN) surging in early July and then correcting with a falling flag into early August. With a surge over the last four days, the stock broke above flag/trendline resistance. Chart 10 shows the Internet ETF (FDN) moving to its highest level since early May. Amazon and Google are its two biggest components. With todays surges, all three are in clear up trends with the late July low marking key support.
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Chart 8
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Chart 9
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Chart 10
DOLLAR ETF HITS LONG-TERM SUPPORT ZONE... The Dollar has been in a sharp decline the last nine weeks. Chart 11 shows the DB Dollar Bullish ETF (UUP) with nine red weekly candlesticks. This means the ETF has declined nine weeks straight. It is a really an unbelievable turn of events when one looks back to early June, which is when Europe was in the middle of a sovereign debt crisis. A Greek bailout, a slow down in summer news and the European bank stress tests all contributed to a higher Euro. Dont forget that news cycles and there are four weeks left in summer. Despite a bigger, and sharper, correction than expected, UUP entered a support zone around 23.5-24 last week. This zone stems from the February-March consolidation and a 50-62% retracement of the entire advance. It is also worth noting that the rising 200-day moving average is around 23.68.
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Chart 11
Chart 12 shows daily prices to focus on the current decline, which formed a steep channel. This chart also highlights support from the February-April lows. Even though the Dollar bounced today, the channel (knife) is still falling. A move above 24 is needed to break the upper trendline. The indicator window shows the Commodity Channel Index (CCI) oscillating around -100 (oversold) since mid June. This is a classic case of becoming oversold and remaining oversold. A break into positive territory is needed to turn momentum bullish again.
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Chart 12
GOLD AND GOLD MINERS ETF BOUNCE... A bounce in the Dollar and decline in the Euro pushed bullion higher on Wednesday. Chart 13 shows the Gold ETF (GLD) recovering from its support break and moving above the wedge trendline. However, notice that GLD opened strong and moved lower after the open. There was no follow through after the gap. This post-gap decline affirms resistance at 118. Chart 14 shows the Gold Miners ETF (GDX) showing a little relative strength. While GLD broke below its May low, GDX actually held above its May low. GDX surged along with GLD over the last few days, but also remains short of a breakout at 50. The bottom indicator shows the GDX:GLD ratio, which compares the performance of the Gold Miners ETF to gold. Gold usually does best when the miners show relative strength. A triangle breakout in the price relative would be bullish for bullion.
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Chart 13
