QQQ FOLLOWS THROUGH ON BIG HAMMER -- INTEL POWERS SEMICONDUCTORS HIGHER -- FINANCE SECTOR IS BADLY UNDERPERFORMING THE MARKET -- OIL AND EURO SURGE ALONG WITH STOCKS -- JUNK BOND ETFS SURGE WITH THE STOCK MARKET
QQQ FOLLOWS THROUGH ON BIG HAMMER... Link for todays video. The Nasdaq 100 ETF (QQQ) followed Mondays hammer with a small gain on Tuesday and a big gap on Wednesday. This massive hammer was featured in Mondays Market Message. Techs led the charge on Wednesday with QQQ jumping over 2%. Chart 1 shows the hammer, gap and flag breakout. With this move, the ETF is now testing the early April high. Todays big gap marks the first zone to watch. Strong moves and gaps should hold. Failure to hold and filling of the gap would be quite negative. On a closing basis, support is set at 56, which is just below the open of the hammer. The indicator window shows MACD turning back up and moving above its signal line. MACD is barely positive. Failure to hold this signal-line crossover and a move below zero would be bearish for momentum. Chart 2 shows the Internet FirstTrust ETF (FDN) with a hammer and gap-surge over the last three days.
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Chart 1
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Chart 2
INTEL POWERS SEMICONDUCTORS HIGHER... A bullish reaction to earnings from Intel (INTC) sent the stock sharply higher and powered the Semiconductor HOLDRS (SMH) above its early April high. Chart 3 shows SMH holding support at 33.5 with a consolidation the previous four days and a big gap today. The ETF opened on its low and closed near its high to forge a long white candlestick. There is even somewhat of an island reversal over the last eight days. Notice how SMH gapped below 34.5, stalled for six days and then gapped above this level. As with QQQ above, the gap is bullish as long as it holds. Key support is set at 33.5. The indicator window shows the Price Relative breaking above its late March high as SMH starts showing upside leadership. Chart 4 shows Intel surging above its late March high with a high-volume surge today. My guess is that there is a fair amount of short-covering involved in todays surge. With the stock already short-term overbought, some backing and filling is likely in the coming days.
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Chart 3
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Chart 4
FINANCE SECTOR IS BADLY UNDERPERFORMING THE MARKET ... Even though the major indices surged towards their early April highs, the Finance SPDR (XLF) remains a major laggard as it trades near its mid March low. Chart 5 shows the ETF breaking wedge support and plunging below 16 last week. I showed a falling channel in late March and early April, but this breakout did not hold. There is possibly some support at hand from the mid March low, but there are certainly no signs of buying pressure. Last weeks gaps have yet to be filled and this is the first challenge for the bulls. The Price Relative moved to a multi-year low this week. XLF is clearly underperforming and the weakest of the nine sectors.
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Chart 5
The Regional Bank SPDR (KRE) was perking up at the end of March and in early April, but failed to break its January high and fell sharply the last two weeks. Chart 6 shows the ETF within a trading range for 2011. The swing within this range is clearly down with an important support test looming. The Price Relative failed to hold its late March upturn and moved sharply lower the last two weeks as KRE underperformed the broader market.
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Chart 6
OIL AND EURO SURGE ALONG WITH STOCKS... In contrast to Monday, today was a risk-on day. Stocks started it all off with an afterhours surge on Tuesday afternoon. Strength carried over into Australia, Japan and then Europe. By the opening bell this morning, stocks were ready for a strong open and a big gap. Strength in stocks increased the appetite for riskier assets and decreased demand for safe havens. As a result, the Euro and Oil surged, while the Dollar and Treasuries fell. Chart 7 shows the Euro Currency Trust (FXE) surging to a 52-week high today. This advance over the last two days established a reaction low upon which to base key support (141). Also notice that RSI has held the 40-50 zone since mid January. The bull range for RSI is roughly 40 to 80. A break below 40 in RSI and 141 in FXE would be bearish.
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Chart 7
Weakness in the Dollar and strength in the stock market lifted oil on Wednesday. Chart 8 shows the 12-Month US Oil Fund (USL) surging above 50. The overall trend is clearly up on this chart as the ETF trades well above the late November trendline.
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Chart 8
JUNK BOND ETFS SURGE WITH THE STOCK MARKET... In contrast to their high-grade counter parts, the junk bond ETFs trade like the stock market and benefit from a strong economy. High-grade corporate bonds and US Treasuries are tied to the outlook for interest rates. Junk bonds, on the other hand, are more tied to the outlook for the economy. As such, junk bonds act more like stocks than bonds. Junk bonds have higher yields and carry more risk risk of default. A strong economy improves corporate profits and reduces the risk of default for marginal companies (junk bond issuers). As such, junk bonds are a litmus test for the economy and hence the stock market. Chart 5 shows the High-Yield Bond SPDR (JNK) forging a 52-week high in early April and then consolidating the last two weeks. With todays surge in stocks, JNK broke above flag resistance and remains in bull mode. The mid April lows now mark the first support level to watch for signs of short-term weakness. Chart 6 shows the iShares High-Yield Bond ETF (HYG) with similar characteristics.
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Chart 9
