SMALL-CAPS AND TECHS LEAD MARKET HIGHER -- HEALTHCARE SPDR EXCEEDS SUMMER HIGHS -- AMGEN, J&J AND PFIZER PROPEL HEALTHCARE HIGHER -- RISK-ON TRADE RULES WITH RISING EURO -- BONDS TEST SUPPORT WITH SEPTEMBER DOWNSWING
SMALL-CAPS AND TECHS LEAD MARKET HIGHER... Link for todays video. Buying pressure continued on Wednesday with the Russell 2000 ETF (IWM) and the Nasdaq 100 ETF (QQQQ) leading the major indices higher. John Murphy wrote about the S&P 500 testing neckline resistance yesterday. Today, the Nasdaq 100 ETF exceeded its summer highs in a show of upside leadership. As of Wednesdays close, QQQQ is up around 10% in the last 10 days. This has got to be one of the best September starts in a long time. Chart 1 shows the ETF clearing its August high on Monday and closing above its June high today. The ETF is overbought after a 10% move in as many days, but shows no signs of letting up. Mondays gap has held three days and the bulls are in clear control as long as this gap holds.
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Chart 1
Chart 2 shows the Russell 2000 ETF (IWM) breaking above the April trendline with a gap up on Monday. This gap has held for three days now. IWM has yet to exceed its summer highs, but remains in a clear upswing this month. The gap and last weeks consolidation combine to mark support around 63-64. A break below this level would reverse the upswing and call for a reassessment, especially if IWM fails to take out the July high.
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Chart 2
HEALTHCARE SPDR EXCEEDS SUMMER HIGHS... The Healthcare SPDR (XLV) is showing some upside leadership with a break above the summer highs. Chart 3 shows daily candlesticks over the last five months. XLV has been locked in a trading range since May with support around 28 and resistance around 30. Since September 1st, the ETF is up nine of the last ten days with a gain of 7.5%. This is a big move for healthcare. While the SPDR is short-term overbought, the medium-term implications of a breakout are bullish. Chart 4 shows weekly candlesticks over the last two years. XLV found support just above the 50% retracement and prior consolidation. With the surge over the last three weeks, MACD moved above its signal line for the first time since January.
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Chart 3
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Chart 4
AMGEN, J&J AND PFIZER PROPEL HEALTHCARE HIGHER... Within the Healthcare SPDR, we are seeing leadership from Amgen (AMGN), Johnson & Johnson (JNJ) and Pfizer (PFE). Chart 5 shows Amgen surging off support with a big move in September. The stock is up eight of the last ten days and six days straight. Even though AMGN has yet to clear resistance, the third surge off the 50-51 area affirms support. Chart 6 shows J&J with a diamond-esque consolidation this summer and a breakout in September. J&J is up nine of the last ten days and six days straight. Chart 7 shows Pfizer surging with a big gap in early August and then a flag breakout in early September. With todays big move, the stock broke above the May highs. Not many stocks can make that claim.
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Chart 5
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Chart 6
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Chart 7
RISK-ON TRADE RULES WITH RISING EURO ... Stocks were helped with a big surge in the Euro over the last few days. Relative weakness in the Euro detracted from the risk-on trade last week, but the bullish reaction to Basel III put the Euro back in bull mode. Chart 8 shows the Euro ETF (FXE) surging above resistance with big moves on Monday and Tuesday. The ETF stalled on Wednesday, but the breakout is holding and should be considered bullish until proven otherwise. The trendline extending up from early June and last weeks lows mark key support. The indicator window shows MACD turning up and moving into positive territory.
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Chart 8
Chart 9 shows the Euro ETF with SPY. These two have been positively correlated throughout 2010. It will not last forever, but a strong Euro has been bullish for stocks so far. In the last five months, notice how both fell in May, diverged a little in June, rose in July and fell in August. After some delay last week, the Euro got back on track and both are rising in September.
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Chart 9
BONDS TEST SUPPORT WITH SEPTEMBER DOWNSWING... Bonds are also part of the risk-on trade. Money prefers risk when bonds decline. Money prefers safety when bonds advance. It was all about safety in May and August as bonds moved sharply higher both months. Chart 10 shows the 20+ Year T-Bond ETF (TLT) peaking in late August and declining the last 3-4 weeks. Weakness in bonds also fuelled rally in stocks. Money moving out of bonds has to go somewhere. Even though TLT is in a 3-4 week downtrend, the first support test is at hand as the ETF returned to broken support. Also notice that the decline retraced around 62% of the prior advance and formed a falling flag. Flag resistance is set at 104. A break above this level would reverse the September slide and this could argue for a pullback in stocks.
