QQQQ AND SPY SURGE INTO RESISTANCE -- SMALL-CAPS AND NASDAQ START SHOWING LEADERSHIP -- FINANCE SECTOR LEADS THE CHARGE -- JPM, GS AND MS SURGE TOWARDS RESISTANCE -- SEMIS BATTLE BROKEN SUPPORT ZONE -- AMKR AND XLNX SURGE OFF SUPPORT
QQQQ AND SPY SURGE INTO RESISTANCE... Link for todays video. Chart 1 shows the Nasdaq 100 ETF (QQQQ) gapping higher on Monday and moving into a resistance zone from the June-August highs. With todays advance, the ETF is up around 3.5% from its August closing lows. Also notice that the Commodity Channel Index (CCI) moved above +100 last week and remains above +100. This makes the ETF both overbought and at resistance. While there are no signs of material weakness since the September 1st breakout, the odds of a pullback or consolidation are certainly high right now.
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Chart 1
Chart 2 shows the S&P 500 ETF (SPY) gapping above 112 on Monday and stalling with a doji. The ETF moved back above its 200-day moving average, but is trading in a resistance zone marked by the June-August highs. This resistance line also forms the neckline of an inverse head-and-shoulders pattern. A solid break above resistance with expanding volume and strong breadth is needed for confirmation. As with QQQQ, SPY is up sharply (~7%) in the last eight days and short-term overbought, which makes it ripe for a consolidation or pullback.
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Chart 2
SMALL-CAPS AND NASDAQ START SHOWING LEADERSHIP... Small-caps led the market higher on Monday with the Russell 2000 ($RUT) gaining around 2.50%. In contrast, the S&P 500 was up just over 1% and the Dow was up a little less than 1%. The Financial services sector is the single largest sector in the Russell 2000 and relative strength in this sector lifted the small-caps index. Chart 3 shows the Russell 2000:S&P 100 ratio chart, which is the price relative. This ratio reflects the performance of small-caps relative to large-caps. The ratio remains in a downtrend since mid May, but there was a rather sharp surge the last 3-4 weeks. This is a good start and follow through above the May trendline (1.30) would have longer term implications. Chart 4 shows the Nasdaq:NY Composite ratio moving sharply lower from early June to the end of August. The ratio surged in September as the Nasdaq outperformed for 10 days or so. This is a start, but a follow through breakout is needed to fully reverse Nasdaq underperformance.
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Chart 3
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Chart 4
FINANCE SECTOR LEADS THE CHARGE... The finance sector led the market higher as banks rallied on news of Basel III. International bank regulators passed Basel III on Sunday night. These new rules will require banks to increase their reserve requirements over the next few years. The announcement brought a sense of relief to the market as this uncertainty was removed. Chart 5 shows the Financials SPDR (XLF) surging above 14.70 with a big move on Monday. Like SPY and QQQQ, the ETF is near resistance that extends back to June (actually late May). XLF has been locked in a trading range the last 3+ months. With the ETF already up over 10% the last two weeks and near resistance, the odds of a pullback or consolidation are certainly mounting.
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Chart 5
The indicator window shows the Financial Sector Bullish% Index ($BPFINA). Bullish Percent Indices can be found at the bottom of the Market Summary page for each sector and five broad market indices. The Bullish Percent Index measures the percentage of stocks on P&F buy signals. First, notice that the BPI remains below 50%, which represents an important bullish threshold. The bulls have the edge when above 50% and the bears otherwise. Second, notice that the BPI is still below its 20-day SMA. Despite a big surge in XLF, the BPI has yet to even turn up. At the very least, a break above the 20-day SMA is needed to show improving conditions within XLF. The current BPI number is based on Fridays close. Check back tonight or early tomorrow morning to see the BPI results for Monday.
JPM, GS AND MS SURGE TOWARDS RESISTANCE... JP Morgan (JPM) is the biggest component of the Financials SPDR. Weighing in around 9.86%, JPM accounts for around 1/10th of the ETF. As JPM goes, so goes XLF. Chart 6 shows JPM finding support near its July low and surging around 10% the last two weeks. While the surge is certainly impressive on price, below average volume detracts from this move. The stock is up 7 of the last 9 days and not one day is with above average volume. Chart 7 shows Goldman Sachs (GS) surging towards resistance with one above average volume day in the last two weeks. Chart 8 shows Morgan Stanley (MS) with similar characteristics.
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Chart 6
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Chart 7
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Chart 8
SEMIS BATTLE BROKEN SUPPORT ZONE... The Semiconductors HOLDRS (SMH) surged over 2% and moved back into its broken support zone. I wrote about SMH breaking support last week and broken support turning into the first resistance test. The ETF surged in early September, fell back last week and then surged today. In fact, chart 9 shows the 60 minute chart with a falling wedge, support at the 62% retracement and a gap/breakout today. It is short-term, but increases the chances the SMH will continue higher and move back above broken support, which would be positive on the daily chart. All bets are off if SMH fails to hold todays gains and moves below 24.70 again. Chart 10 shows the daily chart with the next resistance zone around 26.5-27. This zone stems from a 50-62% retracement of the August decline and broken support.
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Chart 9
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Chart 10
AMKR AND XLNX SURGE OFF SUPPORT... Chart 11 shows Amkor (AMRK) surging off support in early September, pulling back and then surging above 5.75 with good volume today. Support around 5-5.25 stems from the July-August-September lows. The stock remains below an important resistance level around 6.25. On Balance Volume (OBV) is shown behind the price (gray). This cumulative indicator adds volume on up days and subtracts volume on day days. Notice that a bullish divergence formed in August-September and OBV broke above its summer highs today. RSI (not shown) also formed a sizable bullish divergence over the last 2-3 months.
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Chart 11
Chart 12 shows Xilinx (XLNX) trying to firm around 25 over the last 4-5 weeks. The stock plunged below 26 in mid August, probably due to an earnings miss. After this high volume decline, XLNX consolidated with a rather choppy range that looks like a small inverse head-and-shoulders. Resistance just below 26 is well established and a break above this level would be positive.
