QQQQ AND IWM HOLD THEIR GAPS -- SEMIS SHOW RELATIVE STRENGTH -- ANALOG DEVICES, SANDISK AND TEXAS INSTRUMENTS LEAD SEMIS -- FINANCE SPDR REINSTATES PRIOR RESISTANCE LEVEL -- REGIONAL BANK SPDR FORMS HAMMER AT KEY RETRACEMENT
QQQQ AND IWM SHOW RELATIVE STRENGTH AS GAPS HOLD ... Link for todays video. The finance sector weighed on the S&P 500 ETF (SPY), but the Russell 2000 ETF (IWM) and the Nasdaq 100 ETF (QQQQ) showed strength throughout the day and close with modest gains. Short-term, all three gapped higher last Thursday and these gaps are holding. Even though stocks remains medium-term overbought, the ability to hold these gaps in the face of European adversity shows resilience. Chart 1 shows SPY gapping higher last Thursday and then stalling the last three days. The ETF closed slightly negative on the day. Chart 2 shows QQQQ gapping up and breaking a short trendline on Thursday. This gap has now held for three days as QQQQ moved higher on Monday. Chart 3 shows IWM gapping higher and closing up three days in a row. All three charts show RSI in the indicator window. Notice how this momentum oscillator bounced off the 40-50 zone to keep medium-term momentum bullish. RSI has a bull zone (40-80) and a bear zone (20-60). RSI has been its bull zone since early September.
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Chart 1
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Chart 2
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Chart 3
SEMIS CONTINUE TO SHOW RELATIVE STRENGTH... The Semiconductor HOLDRS (SMH) continues showing upside leadership and this is positive for the market overall. Chart 4 shows SMH breaking above its summer high in late October and surging to a 52-week high in early November. The ETF became overbought above 31 and then consolidated with a pennant. With another surge over the last four days, the ETF broke pennant resistance to signal a continuation higher. Some groups seem to like QE2 better than others. Semis are one of the most cyclical groups and also a very important part of the technology sector. Needless to say, relative strength is positive for the overall market. The mid November lows mark support and it would take a move below these lows to re-evaluate. The indicator window shows the price relative closing in on its July high.
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Chart 4
ANALOG DEVICES, SANDISK AND TEXAS INSTRUMENTS LEAD SEMIS... Chart 5 shows Sandisk (SNDK) leading the semis higher with a surge above 41 on Monday. The stock remains below its August high, but in a clear uptrend with a series of higher highs and higher lows since the late August low. The mid November lows now mark key support. Chart 6 shows Texas Instruments (TXN) breaking pennant resistance and forging a 52-week high today. The stock may be overbought, but there are no signs of weakness. Chart 7 shows Analog Devices (ADI) surging to a new 52-week high today. Also notice that the price relative hit a new high to confirm relative strength.
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Chart 5
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Chart 6
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Chart 7
FINANCE SPDR REINSTATES PRIOR RESISTANCE LEVEL... The Finance SPDR (XLF) was by far the weakest of the nine sectors on Monday. The combination of European debt fears and FBI hedge fund raids weighed on this group. Chart 8 shows XLF breaking resistance at 15 with a strong move in early November. However, the subsequent decline proved just as strong as the ETF moved back below 15 last week. This level turned into resistance again as XLF formed a falling channel over the last few weeks. A break back above 15 is needed to revive the bulls here. The price relative shows XLF continuing to underperform the broader market.
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Chart 8
REGIONAL BANK SPDR FORMS HAMMER AT KEY RETRACEMENT ... The Regional Bank SPDR (KRE) was also hit, but recovered from its low to form a hammer on the day. These are bullish candlestick reversal patterns that require confirmation with further upside. Chart 9 also shows KRE with a falling wedge taking shape the last few weeks. Mondays hammer formed at the 62% retracement mark. A bullish setup may be in the making here. A move above last Thursdays high would break short-term resistance and keep the bigger uptrend alive.
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Chart 9
EURO DECLINES DESPITE IRISH BAILOUT... Even though the Irish accepted an EU led bailout for its banks, the Euro Currency Trust (FXE) failed to rally on the day. This appears to be a negative reaction to positive news. Perhaps the news is not so positive. The debt has not gone away. It has just been transferred from one entity to another. In a similar vein, the bailout of the Irish banks does not change the debt situation in Portugal or Spain. Chart 10 shows the Euro ETF breaking support and broken support turning into resistance with todays decline. Also notice that the ETF broke the lower line of Andrews Pitchfork, which is based on two reaction lows and a reaction high. The middle line starts from the low and bisects line AB. The extensions from points A and B run parallel. At this point, it would take a strong move back above last weeks high to merit a re-evaluation.
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Chart 10
EURO ETF FORMS BEARISH ABC CORRECTIVE PATTERN... Even though the Euro ETF is still holding above the June trendline, the most recent advance looks like one big correction within a bigger downtrend. After a gut-wrenching decline from 151 to 119, chart 11 shows the ETF retracing 62% with an ABC advance. This looks like a simple zigzag from Elliott Wave Theory. Moreover, the big decline from 151 to 119 is Wave 2, the ABC advance is Wave 2 and the Euro appears to be embarking on Wave 3 down. This would project a move below the June low. The indicator window shows StochRSI hitting its centerline (.50). The green and red dotted lines mark surges above .80 (bullish) and below .20 (bearish). StochRSI has been in bull mode since late June. A plunge below .20 would put long-term momentum in bear mode again.
