DOW SPDR RECORDS 52-WEEK HIGH -- RSI FOR QQQQ REMAINS IN BULL MODE -- XLF CHALLENGES SUMMER HIGHS YET AGAIN -- REGIONAL BANKS OUTPERFORMING BIG BANKS -- RAILS AND TRUCKERS LEAD BIG MOVE IN DOW TRANSPORTS -- ENERGY AND OIL SERVICE ETFS OUTPERFORMING OIL
DOW AND NASDAQ 100 ETFS RECORD 52-WEEK HIGHS... Link for todays video. With another broad market advance on Wednesday, the Dow Industrials SPDR (DIA) and the Nasdaq 100 ETF (QQQQ) became the first of the major index ETFs to clear their April highs. The S&P 500 ETF (SPY), Russell 2000 ETF (IWM) and S&P MidCap 400 SPDR (MDY) still remain a few percentage points short of these highs. Chart 1 shows DIA moving above 110 this week to forge a 52-week high. DIA has been in bull mode since the wedge breakout and successful support test around 99 in August. Broken resistance around 107 turns into the first support level to watch. However, this is just a minor support level. Major support remains at the August low around 99.
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Chart 1
Momentum also remains in bull mode. The indicator window shows StochRSI moving above .50, its midpoint, in late July and holding above this level for almost three months. This midpoint is like the level in the cup. The cup is half-full (bullish) when the indicator is above its midpoint and half-empty (bearish) when below. Unfortunately, there is no telling how long a midpoint cross will last. Suffice to say, the bulls are on firm footing as long as StochRSI holds above .50. Prior crosses are shown with the green dotted lines.
RSI FOR QQQQ REMAINS IN BULL MODE... Chart 2 shows the Nasdaq 100 ETF (QQQQ) breaking above its April high with a 1.5% advance (so far this week). Broken resistance at 48 turned into support with a bounce over the last two weeks. A move below 48 would be the first sign of weakness. This is, however, just a minor support level. The August lows mark major support just above 42. The indicator window shows RSI bouncing off the 40-50 zone in August and remaining bullish. Instead of looking for divergences, I prefer to view momentum as bullish when RSI trades in the 40-80 zone and bearish when in the 20-60 zone. RSI oscillates between 0 and 100 with 50 as the midpoint. The 40-80 zone represents the upper range, while the 20-60 zone marks the lower range. RSI rarely moves above 80 or below 20. RSI has been in the 40-80 zone since April 2009. Notice how this zone held in January and from May to August. A break below 40 would turn long-term momentum bearish.
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Chart 2
XLF CHALLENGES SUMMER HIGHS YET AGAIN... Even though the finance sector remains the big laggard, the Finance SPDR (XLF) made another breakout bid with a move towards 15 today. Chart 3 shows XLF breaking the April trendline and the trendline turning into support around 14.25. With a high around 15 today, XLF made its fourth bid to break this resistance level. A breakout would be bullish and argue for further strength, which would be positive for the broader market. Dont hold your breadth waiting for a breakout though. XLF opened strong and closed weak today. Resistance is holding until proven otherwise. The indicator window shows the price relative (XLF:SPY ratio). Even with the move to resistance, XLF remains an underperformer. The price relative moved to new lows in late September and simply flattened out the last few weeks. This ratio needs to rise for XLF to shows relative strength.
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Chart 3
REGIONAL BANKS OUTPERFORMING BIG BANKS... In contrast to the big bank dominated finance sector, the Regional Bank SPDR (KRE) advanced over 1.5% today and continues to show leadership within the sector. Chart 4 shows KRE breaking the April trendline in September and then establishing support around 22.50 in early October. This advance is starting to look like a rising wedge, which could be just an oversold bounce or bear market rally. Even so, the bulls have the edge as long as the wedge rises and support holds. The indicator window shows KRE relative to the Finance SPDR (red) and KRE relative to the S&P 500 ETF (black). Both were moving lower from May to September as KRE led the finance sector and market lower. Things began to change in late September as KRE started outperforming XLF. Notice how the red price relative (KRE:XLF) bounced in late September, but the black price relative (KRE:SPY) did not.
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Chart 4
RAILS AND TRUCKERS LEAD BIG MOVE IN DOW TRANSPORTS ... Despite a sharp rise in oil prices over the last few weeks, the Dow Transports led the market higher by gaining around 3% on Wednesday. Chart 5 shows the Dow Transports surging above 4700 and closing in on its April high. The Average broke above its summer highs over the last few weeks. In fact, both the Dow Industrials and Dow Transports have exceeded their summer highs to put Dow Theory into bull mode. Transports can be broken down into three groups: air freight, airlines, railroads and trucking. FedEx and UPS make up the Air Freight group. Of these four groups, trucking and railroad are the strongest. Chart 6 shows the DJ US Trucking Index ($DJUSTK) breaking above its April and August highs today. Chart 7 shows the DJ US Railroad Index ($DJUSRR) recording a 52-week high with a surge above 660 on Wednesday.
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Chart 5
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Chart 6
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Chart 7
ENERGY AND OIL SERVICE ETFS OUTPERFORMING OIL ... The Energy SPDR (XLE) and the Oil Service HOLDRS (OIH) put in solid performances again on Wednesday. Chart 8 shows XLE breaking above its summer highs in late September and continuing higher throughout October. John Murphy featured a number of energy related stocks in last Tuesdays Market Message. Even though the XLE is up around 18% since late August it shows no signs of slowing down. The pink trendline defines the current upswing, which is quite steep. A trendline break would argue for a pullback. Broken resistance around 56 turns into the first support level to watch, should a pullback evolve. Barring a pullback, the April highs mark the next resistance level around 61. The indicator window shows XLE and the USO Oil Fund (USO). Both have been moving higher the last few weeks, but it is clear that XLE is outperforming USO with a bigger move. Relative strength in energy stocks should be seen as positive for crude. Chart 9 shows the Oil Service HOLDRS (OIH) breaking above its summer high in late September and surging over 2% on Wednesday. The indicator window shows OIH leading oil higher since late August.
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Chart 8
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Chart 9
LONG-TERM BONDS COULD HINT A CHANGE IN FED POLICY... We are starting to see some decoupling along the yield curve. Short-term (1-5 years) and Medium-term (7-10 years) rates moved to new lows over the last few weeks. Long-term rates (20-30-years), on the other hand, held above their August lows and formed higher lows. This is interesting because long-term rates are more sensitive to overall changes in interest rates. I am going to use the 7-10 year Bond ETF (IEF) and the 20+ year Bond ETF (TLT) as examples. Keep in mind that rates and bonds move in opposite directions. Chart 10 shows the 7-10 year Bond ETF (IEF) moving above its August high with a move above 100 last week. No downtrend and no sign of weakness here. The 10-year Treasury Yield ($TNX) confirms this chart with a 52-week low below 2.4% last week. In contrast to the 7-10 year Bond ETF, chart 11 shows the 20+ year Bond ETF (TLT) forming a lower high in early October and the 30 year Treasury Yield ($TYX) forming a higher low. TLT did not follow IEF higher and the 30-year Treasury Yield did not follow the 10-year Treasury Yield lower. Relative weakness in long-term bonds could spread to other parts of the yield curve. Long-term bonds are the most sensitive to interest rates because they pay out over a longer time period. They are exposed to interest rates for longer periods of time. A change in Fed interest rate policy would probably be seen in the bond market first, at the long end of the yield curve.
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Chart 10
