DIA AND SPY BREAK CONSOLIDATION RESISTANCE -- FINANCE/BANKING ETFS BREAK TRENDLINES SEMI EQUIPMENT STOCKS LIFT SMH TO NEW HIGH -- YIELDS RISE AS STOCKS SURGE AND EURO BOUNCES -- 7-10 YEAR BOND ETF BREAKS PENNANT SUPPORT
DIA AND SPY BREAK CONSOLIDATION RESISTANCE WITH GAPS... Link for todays video. Stocks surged with a broad rally that lifted all sectors. All major indices gained over 2% and the Russell 2000 showed leadership as it broke above its November high. Historically, December is the second strongest month for the stock market. Todays big rally is a good start to keeping that seasonal pattern alive. Chart 1 shows the Dow Industrials SPDR (DIA) breaking the upper trendline of a small wedge with a gap and close above 112. The ETF hit resistance around 112 over the last two weeks. Todays breakout is enough to reverse the four week downtrend. Also notice that CCI moved back into positive territory for the first time since the first half of November. Todays gap and breakout are bullish as long as they hold. A move back into the gap zone would be negative and further weakness below this weeks low would totally negate todays breakout. Chart 2 shows the S&P 500 ETF (SPY) breaking out of its two week range with a gap/surge above 120.5 on Wednesday. The gap held and there was even some upside follow through after the gap. Also note that CCI moved back into positive territory.
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Chart 1
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Chart 2
BANKING STOCKS SURGE AS XLF AND KRE BREAK TRENDLINES... Banking stocks experienced heavy selling pressure the last three weeks of November as the European debt crisis resurfaced. Reports that the US would contribute more money to an IMF fund for Europe lifted global equities and banking stocks today. However, these were just reports. As far as I know, nothing was actually verified. This is where technical analysis comes in handy. We cannot be privy to all available information. Moreover, we never really know what is driving a stock, ETF or index on any particular day. We do, however, know the actual price and can analyze picture unfolding on the chart. Chart 3 shows the Finance SPDR (XLF) finding support around 14.4 the prior five days and surging above short-term resistance with a gap up today. This is a positive development until proven otherwise. Todays move confirms Mondays bullish engulfing and reinforces support at Mondays low. Failure to hold the gap and a move below this low would negate todays breakout. Chart 4 shows the Regional Bank SPDR (KRE) following suit with a gap and break above last weeks high. This gap and breakout are also bullish until proven otherwise. A move below this weeks low would negate the breakout.
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Chart 3
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Chart 4
SEMICONDUCTOR EQUIPMENT STOCKS LIFT SMH TO NEW HIGH... In a good sign for techs and the market overall, the Semiconductor HOLDRS (SMH) surged to a new 52-week high on Wednesday. Chart 5 shows SMH gapping up and moving above its November high today. I featured SMH in the 22-November Market Message as it broke pennant resistance. The only negative here is that the ETF is getting overextended. However, there is no sign of weakness and key support is based on the mid November lows. Leadership today is coming from the semiconductor equipment makers. Chart 6 shows Applied Materials (AMAT) breaking flag resistance with a gap and move above 12.75. Chart 7 shows Novellus (NVLS) breaking flag/wedge resistance in the latter part of November. Chart 8 shows Lam Research (LRCX) breaking triangle resistance with a surge above 47 today.
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Chart 5
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Chart 6
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Chart 7
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Chart 8
YIELDS RISE AS STOCKS SURGE AND EURO BOUNCES... The combination of strong economic numbers in the US and diminished concern over Europe, triggered selling pressure in bonds and this pushed the 10-year Treasury Yield ($TNX) above its November high. Remember, bonds and yields move in opposite directions. The ADP Employment report showed an increase of 93,000 private sector jobs, which was the biggest jump in three years. In addition, the ISM Services Index came in at 56.5, well above 50. Readings above 50 favor economic expansion, while readings below 50 favors contraction. The Euro got an oversold bounce and this diminished the need for safe-haven bonds. Chart 9 shows the 10-year Treasury Yield breaking pennant resistance with a surge above 29 (2.9%) today. This breakout signals a continuation of the uptrend that began with the resistance breakout in mid November. The next resistance zone resides around 31-32 (3.1% to 3.2%). Chart 10 shows the 30-year Treasury Yield ($TYX) forming a falling flag and surging to the upper trendline.
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Chart 9
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Chart 10
7-10 YEAR BOND ETF BREAKS PENNANT SUPPORT... Chart 11 shows the 7-10 year Bond ETF (IEF) looking like a mirror image of the 10-year Treasury Yield. This makes sense because the 10-year Yield is closest to the maturities in this bond ETF. IEF broke pennant support with a sharp move below 97 today. The uptrend that was in place since the early May breakout has clearly reversed. Chart 12 shows the 20+ year Bond ETF (TLT) looking like a mirror image of the 30-year Treasury Yield. These bonds and yields represent the loooonnnggg end of the curve. TLT hit resistance from broken support and dropped sharply on Wednesday. In a separate, but related note, Mark Hulbert of CBSMarketWatch.com, reports that money has started flowing out of bond funds.
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Chart 11
