DOW SPDR AND NASDAQ 100 ETF NEAR APRIL HIGHS -- SHORT-TERM TREASURY YIELDS HIT NEW LOWS -- CORN AND SOYBEANS LIFT AGRICULTURE ETF TO 52-WEEK HIGH -- AG RELATED STOCKS SURGE -- SHANGHAI COMPOSITE BREAKS RESISTANCE
DOW INDUSTRIALS SPDR AND NASDAQ 100 ETF NEAR APRIL HIGHS... Link for todays video. The uptrends remains in place for the major index ETFs, but the Dow Industrials SPDR (DIA) and the Nasdaq 100 ETF (QQQQ) are nearing resistance from their April highs. After closing up five of the last six weeks, both are around 1% from their April highs. These highs may offer resistance, but support is more important in an uptrend. Resistance levels are potential and expected to be broken in an uptrend. Support levels are key because they are expected to hold. We can also differentiate between minor and major support levels. Chart 1 shows the Dow Industrials SPDR breaking its August high and resistance from the August high turning into support. This minor support is the first level to watch for signs of a pullback. As far as the weekly uptrend is concerned, the August lows mark major support at 99. A break below these lows would forge a lower low and reverse the uptrend. Keep in mind that minor support on the weekly chart is likely to be major support on the daily chart. The weekly chart marks the long-term trend, while the daily chart captures the medium-term trend. Momentum also remains bullish for DIA. The indicator window shows StochRSI moving above .50 in late July and remaining above this midpoint for over two months. The green dotted lines show prior crosses above .50. Look for a break below .50 to turn momentum bearish and argue for a correction in DIA.
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Chart 1
Chart 2 shows the Nasdaq 100 ETF breaking above triangle resistance in mid September and nearing its April highs this week. Broken resistance turns into the first support level at 47.5. A break below this level would reverse the six week uptrend, but not the overall uptrend on the weekly chart. The August lows mark major support at 42.50. RSI is shown in the indicator window. Even though RSI remains well below its April high, I would consider momentum bullish as long as RSI holds the 40-50 zone. Notice how this zone held throughout 2010.
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Chart 2
SHORT-TERM TREASURY YIELDS SINK TO NEW LOWS... A worse-than-expected employment report sent short-term treasury yields to new lows on Friday. The labor department reported a 95,000 decline in non-farm payrolls. This was worse-than-expected because the consensus estimate called for an increase of 75,000 jobs. Talk about a miss. I am not going to debate the findings of this report, but the affect on short-term interest rates was clear. Chart 3 shows the 5-yr Treasury Yield ($FVX) dipping below 1.1% today, which is an all time low. With a worse-than-expected jobs report, investors now believe that quantitative easing 2.0 (QE2) is a done deal. However, at this point, a lot of QE2 is already priced into the bond market. The 5-yr Treasury Yield declined from 1.6% to 1.1% over the last four weeks alone. This big move started when talk of QE2 began. Remember, treasuries rise when yields decline. I just wonder why money continues moving into 5-year Treasuries that yield a little more than 1%.
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Chart 3
Chart 4 shows the 10-year Treasury Yield ($TNX) moving below 2.4% (24). Falling interest rates point to weakness in the economy, QE2 or both. Stocks appear to like the prospects of QE2 because it means more liquidity. Bonds are also impressed because it means the Fed will be buying treasuries. The 10-year Treasury Yield broke support in mid September and declined to new lows this week. The long-term and the short-term downtrends remain firmly in place. First resistance is at 25 (2.5%). A break above this level would call for a bounce in yield and a fall in bonds.
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Chart 4
CORN AND SOYBEANS LIFT AGRICULTURAL ETF TO 52-WEEK HIGH... The USDA slashed its estimates for end-of-year corn inventory because of lower yield expectations. It appears that these conditions will affect other crops as corn, soybeans and wheat all opened limit up today. These three commodities account for over 30% of the Agriculture ETF (DBA). It is a classic supply-demand arguement. The sharp decline in inventory expectations translates into less supply. This is bullish as long as demand remains constant. Chart 5 shows the Agriculture ETF surging above its September highs with a massive gain today. The ETF found support at the broken resistance zone and the June trendline.
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Chart 5
AGRICULTURE RELATED STOCKS SURGE... With agriculture prices surging and supply expectations shrinking, it is little surprise to see many agriculture related stocks surging. More planting may be in store. Chart 6 shows Intrepid Potash (IPI) breaking flag resistance with a gap and surge on high volume today. Chart 7 shows beaten-down Monsanto (MON) holding above its July low and bouncing off support with good volume the last few days. Chart 8 shows Origin Agritech (SEED) breaking above trendline resistance with a surge over the last three days. Also notice that the September gap held.
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Chart 6
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Chart 7
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Chart 8
SHANGHAI COMPOSITE BREAKS RESISTANCE... After a 5-day holiday and some good news, the Shanghai Composite ($SSEC) broke above resistance with a big surge on Friday. Moodys placed Chinese debt under review but for a good reason. The rating agency is considering an upgrade. Chart 9 shows the index advancing in July, stalling in August-September and then breaking above consolidation resistance. This move clears the way for a move towards the next resistance zone around 2950-3000, which stems from broken support. Relative to the S&P 500, the Shanghai Composite was lagging in September. The S&P 500 moved sharply higher, while the Shanghai Composite traded flat. Perhaps Shanghai is going to make up for lost time now. Strength in Chinese stocks is bullish for the Chinese economy and this could also be bullish for some key commodities.
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Chart 9
PETROCHINA HITS NEW HIGH AS CHINA AUTO BREAKS FLAG RESISTANCE... Chart 10 shows China Automotive (CAAS) within an overall downtrend since April. However, the stock is perking up with a triangle breakout to start October and a flag over the last six days. A flag breakout would signal a continuation higher. Chart 11 shows PetroChina (PTR) breaking triangle resistance at the end of September and then forging a new high in October. PetroChina is one of the leaders as the price relative as been rising since early September.
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Chart 10
