QQQQ HITS NEW HIGH WITH BREAKOUT -- FINANCE SECTOR PUSHES TOWARDS APRIL HIGH -- SEMICONDUCTOR HOLDRS GO PARABOLIC -- NETWORKING ISHARES GETS FROTHY IN STRONG UPTREND -- STEEL ETF STALLS WITHIN CHANNEL
QQQQ HITS NEW HIGH WITH BREAKOUT... Stocks extended their gains on Monday with the major index ETFs hitting new 52-week highs. This includes the S&P 500 ETF, the Dow Industrials SPDR, the S&P MidCap 400 SPDR, the Russell 2000 ETF and the Nasdaq 100 ETF. Despite new 52-week highs, QQQQ and IWM closed below their intraday highs as some afternoon selling pressure hit the market. This is not enough to reverse the overall uptrends, but it does reflect a market that is still relatively overbought and ripe for a correction of some sort. Chart 1 shows the Nasdaq 100 ETF (QQQQ) advancing into mid January and then consolidating for a few weeks. Technically, the ETF broke above consolidation resistance and this is bullish. A move back below this breakout (say 57) would put the ETF back in the trading range. This would be just a minor negative though. It would take a break below the consolidation lows to show material selling pressure and reverse the bigger uptrend.
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Chart 1
Chart 2 shows the Russell 2000 ETF (IWM) peaking its head above the January high and then pulling back into the consolidation. I thought ground hog day was last week? This post-breakout pullback shows that the bulls are loosing some of their punch. However, the bears have yet to come up with a stronger punch. Overall, the ETF has been trading between 76.86 and 81.25 (todays high) since December 13th, almost two months. Again, it would take a consolidation support break to show a significant increase in selling pressure. Before leaving these two charts, notice that both IWM and QQQQ have been relatively weak for well over a month. As noted last week, relative weakness in small-caps and large-techs is negative for the market overall. This relative weakness has yet to be confirmed with absolute weakness though.
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Chart 2
FINANCE SECTOR PUSHES TOWARDS APRIL HIGH... As noted on Friday, the Finance SPDR (XLF) was the big laggard among the sectors over the last 12 months. Eight of the nine sectors have broken above their April high. The Finance SPDR remains the lone holdout. That may change. Chart 3 shows XLF breaking above its January high with a surge today. Finance is leading all sectors on Monday. The pattern over the last few weeks looks like a small ascending triangle and todays breakout argues for further gains above 17, which would break the April high. The mid-late January lows mark the first support zone to watch for signs of weakness.
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Chart 3
SEMICONDUCTOR HOLDRS GO PARABOLIC... Chart 4 shows the Semiconductor HOLDRS (SMH) surging to another 52-week high on Monday. While relative strength and upside leadership is certainly positive for the overall market, this chart is starting to look parabolic. SMH is up 50% from its late August low, less than 6 months ago. Moreover, the ETF is up 50% without so much as a 5% pullback. Even though this ETF is looking frothy, it is still in rocket mode with the tip pointing north. This is the opposite of a falling knife. It is a bit early to speculate on support levels because a pullback has yet to even start, but here are two to watch just in case. December consolidation turns into the first support zone around 32-33. Longer-term, broken resistance from the April highs turns into a possible support zone.
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Chart 4
NETWORKING ISHARES GETS FROTHY IN STRONG UPTREND... The Networking iShares (IGN) looks similar to the Semiconductor HOLDRS. Like SMH, chart 5 shows IGN advancing some 50% since the July low. We can apply the same analysis conclusions here. IGN is clearly strong and in an uptrend, but this advance is getting overextended and parabolic in nature. Even though IGN was hit with a 6.5% pullback in mid January, the ETF immediately firmed and resumed its uptrend. IGN surged above its January high last week and recorded a new high today. The late December consolidation and late January lows combine to mark first support around 33.5-34. Longer-term, there is a support level from broken resistance around 31.
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Chart 5
STEEL ETF STALLS WITHIN CHANNEL... The Steel ETF (SLX) led the market higher in December, but moved into a holding pattern in 2011. Chart 6 shows SLX within a rising price channel since July. The ETF is up around 50% from its late May low. Since breaking above its April high, SLX started trading sideways. Broken resistance turned into support at 71 with a few bounces in January. The bulls are in good shape as long as this support level holds. A break below the January lows, however, would argue for a correction. There is some concern building because the Steel ETF has been underperforming the S&P 500 since early January. The bottom window shows the Price Relative (SLX:$SPX ratio) peaking and edging lower the last five weeks.
