RUSSELL 2000 ETF EXCEEDS FEBRUARY HIGH -- WEAKNESS IN SEMIS WEIGHS ON TECHS -- INTEL BATTLES GAP AND TEXAS INSTRUMENTS HITS RESISTANCE -- INDIAN SENSEX SURGES THROUGH RESISTANCE -- SHANGHAI COMPOSITE HITS RESISTANCE ZONE
RUSSELL 2000 ETF EXCEEDS FEBRUARY HIGH... Link for todays video. Small-caps continue to show relative strength as the Russell 2000 ETF (IWM) became the first major index ETF to break its February high. The Dow Industrials SPDR (DIA) is next in line as it trades near its February high. The first quarter is drawing to a close and we could be seeing some end-of-quarter window dressing from underinvested portfolio managers. Whatever the reason, small-caps show relative strength with IWM hitting a new 52-week high ahead of the others. This is a bullish for the broader market because small-caps are more sensitive to the domestic economy. The indicator window in chart 1 shows the IWM/SPY ratio rising since late January. Even though this Price Relative has yet to exceed its January high, a steady 8-9 week rise shows relative strength enough. On the price chart, IWM marked out a clear support zone around 77. The major trend is up as long as this zone holds. Chart 2 shows the Dow Industrials SPDR for reference.
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Chart 1
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Chart 2
WEAKNESS IN SEMIS WEIGHS ON TECH SECTOR... The Nasdaq and the technology sector lagged on Wednesday because of weakness in semicondcator stocks. Chart 3 shows the Semiconductor HOLDRS (SMH) with a rising flag/wedge taking shape over the last few weeks. After a hard hit in early March, the ETF retraced around 62% of the prior decline with the current rally. The combination of a 62% retracement and rising flag could turn out bearish. For now, the flag is still rising and I am marking key support at 34. A move below this level would also fill last weeks gap. This would argue for a continuation of the early March decline. The indicator window shows further reason for caution. SMH shows relative strength as the Price Relative (SMH:SPY ratio) rose until early March. The Price Relative broke down in early March and has yet to recover.
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Chart 3
INTEL BATTLES GAP AND TEXAS INSTRUMENTS HITS RESISTANCE... Chart 4 shows Intel (INTC) getting a bounce last week and then turning rather volatile this week. There were two white candlesticks as the stock bounced above 20.25 last week. Price action turned volatile the last four days with two long upper shadows (Fri-Mon) and two long lower shadows (Tue-Wed). A long upper shadow (intraday high) indicates a failed push higher during the day. A long lower shadow (intraday low) indicates a failed push lower during the day. Despite all this intraday pushing and shoving, Intel closed between 20.25 and 20.50 the last five days. Overall, a rising flag is now taking shape. A move below this weeks low would signal a continuation lower and weigh on the semiconductor group.
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Chart 4
Chart 5 shows Texas Instruments (TXN) with a rising wedge over the last few weeks. Prices are running into resistance from broken support and the 62% retracement. Yes, this pattern looks similar to SMH. While the wedge and resistance are potentially bearish, TXN has yet to break support and reverse the four week uptrend. A move below this weeks low (34) would break wedge support and argue for a continuation lower.
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Chart 5
INDIAN SENSEX SURGES THROUGH RESISTANCE... John Murphy showed the Brazil iShares on the verge of a breakout and the Korea iShares with relative strength. Extending on this emerging market theme, we are also seeing strength in India as the India Sensex Index ($BSE) broke above its February-March highs. Chart 6 shows the Sensex firming near a support zone from the 62% retracement and broken resistance. After three dips below 18K, the index surged above 19K this week to break resistance. India showed relative weakness from early November until mid March. With a fresh breakout, the index may be poised for a relative strength run. Perhaps some Cricket World cup euphoria is rubbing off on the India stock market. India beat Pakistan to advance to the final against Sri Lanka. This is like going to the NCAA Basketball finals, except India has over a billion people enrolled and they have been waiting 28 years for a repeat. Congrats and good luck to the Men in Blue!
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Chart 6
SHANGHAI COMPOSITE HITS RESISTANCE ZONE... After relative weakness at the end of 2010, the Shanghai Composite ($SSEC) found support in January 2011 and showed some relative strength the last two months. Chart 7 shows the index advancing back to the 3000 level this month. The 2011 trend remains up, but the index is hitting a potential resistance zone around 2950-3000. This zone stems from the 62% retracement and the March highs. As with SMH above, the index is still in an uptrend and showing no signs of reversal yet. I am marking support at 2850. A move below this level would break wedge support and argue for a continuation lower.
