CHAIKIN MONEY FLOW REMAINS NEGATIVE TO SPY -- FINANCE SECTOR AND REGIONAL BANKS PROVIDE A SPARK -- CITIGROUP, GOLDMAN AND WELLS FARGO LIFT XLF -- INDUSTRIAL COMMODITIES CONTINUE TO SHOW STRENGTH -- BOND ETF BREAKS FLAG SUPPORT
CHAIKIN MONEY FLOW REMAINS NEGATIVE TO SPY... Link for todays video. The S&P 500 ETF (SPY) remains in an uptrend overall and is currently challenging the February highs. Chart 1 shows the ETF gapping above 132 and forming six indecisive candlesticks the last six days. Indecisive candlesticks have small bodies (open-close range). Little movement from open to close reflects a stalemate between bulls and bears. Despite a stalemate over the last six days, the overall trend remains up since late summer and since mid March. After an advance, six indecisive candlesticks can be considered neutral at worst. The prior move dicates the bias and that bias remains bullish. For now, the gap above 132 is still holding and we have yet to see any significant weakness on the price chart.
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Chart 1
Even though SPY is up some 7% from its mid March lows (15 days), the indicator window shows 15-day Chaikin Money Flow trading in negative territory. One would expect CMF to be well into positive territory by now. Before jumping to conclusions, it is important to understand how CMF is calculated. Finding the volume multiplier is the first step. This value is based on the level of the close relative to the high-low range. A close on the high equals +1, a close on the low equals -1 and a close in the middle equals 0. A close above the midpoint of the high-low range means the volume multiplier is positive and a close below the midpoint means the volume multiplier is negative. This value is multiplied by volume do get each periods Chaikin Money Flow value. With 15-period CMF in negative territory after a 15-day rally, we can assume that most of the closes were below the midpoint of the daily high-low range. This suggests selling pressure outpaced buying pressure during the day for the last 15 days. This negative reading in CMF casts a dark shadow on the current rally. I will be watching the 132 gap zone closely.
FINANCE SECTOR AND REGIONAL BANKS PROVIDE A SPARK... Six of the nine sector SPDRs were up on Wednesday with the Finance SPDR (XLF) leading the way higher. Gains in the other five sectors were quite muted though. Chart 2 shows XLF advancing over 1% with its biggest white candlestick since mid-March. This shows the strongest move from open to close since March 15th. Strength in the finance sector is all the more impressive considering interest rates surged on Wednesday. I showed this XLF chart last week and the basic analysis has not changed. The ETF reversed off the 50% retracement mark and broke channel resistance last week. This breakout is holding and has yet to be proven otherwise.
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Chart 2
Price action in the Regional Bank SPDR (KRE) is even more impressive. Chart 3 shows KRE moving above its February high with a 2% surge today. KRE was also featured in last Wednesdays Market Message. After a surge from 22 to 27 last year, the ETF consolidated with a trading range the last three months. The surge over the last seven days is making a strong bid to break range resistance and continue the December advance. In the indicator window, the Price Relative also turned up and broke the January trendline. This means KRE is starting to show relative strength.
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Chart 3
CITIGROUP, GOLDMAN AND WELLS FARGO LIFT XLF... Once again, Citigroup (C) was the most active stock with 636 million shares trading hands. Bank of America (BAC) was a distant second with a paltry 135 million shares. Both were up on Wednesday. Chart 4 shows Citigroup firming the prior 11 days with 11 indecisive candlesticks and then surging today. Follow through above the March high would break the January trendline. Chart 5 shows Goldman Sachs (GS) trending lower since mid January. The stock got a bounce in mid March, but remains just shy of a breakout. Chart 6 shows Wells Fargo (WFC) holding support in the 31 area and bouncing with an uptick in volume on Wednesday.
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Chart 4
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Chart 5
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Chart 6
INDUSTRIAL COMMODITIES CONTINUE TO SHOW STRENGTH... The positive relationship between commodities and stocks was one of the inter-market relationships featured by John Murphy on Tuesday. In his book on Intermarket Analysis, Murphy also notes the close correlation between the economy and industrial metals. Strength in industrial metals, like silver and copper, points to increased demand from a buoyant economy. Chart 7 shows the Silver Trust (SLV) moving above 38 this week. The ETF is up some 46% since late January and up over 100% since summer. SLV is certainly overbought, but shows no signs of weakness. Chart 8 shows the Base Metals ETF within an overall uptrend. Admittedly, this uptrend has slowed over the last few months as the ETF consolidates around the 24 area. Key support resides at 23 and it would take a break below this level to reverse the current uptrend. I would not consider price action in industrial metals bearish for the overall stocks unless DBB breaks below this level.
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Chart 7
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Chart 8
BOND ETF BREAKS FLAG SUPPORT... The inverse relationship between bonds and commodities was another key inter-market relationship featured by John Murphy. Prices for agricultural products, precious metals and energy have been moving higher since summer. Unsurprisingly, the 20+ year Bond ETF (TLT) has also been moving lower since summer. TLT got a reprieve with a surge in mid March, but failed to hold the breakout at 92 and moved sharply lower on Wednesday. Chart 9 shows TLT with a bearish flag (rising). Wednesdays decline pushed this bond ETF below the lower trendline. This weeks high around 93 becomes the first resistance level to watch for a change of heart.
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Chart 9
10-YEAR TREASURY YIELD STARTS ANOTHER WAVE HIGHER... With bonds falling, the 10-year Treasury Yield ($TNX) is rising and breaking above channel resistance. Applying some Elliott Wave to this chart, we can see a clear five wave advance from the October low to the February high. Five wave advances are part of impulse moves, which means the bigger trend is up. Also notice that Wave 4 formed a triangle pattern, which is also typical for fourth wave corrections. The abc correction from mid February to mid March found support near the Wave 4 lows. This breakout forms Wave 1 of a bigger Wave 3 higher. This analysis points to significantly higher rates and lower bond prices.
