TREASURIES SURGE ON WEAK ECONOMIC NUMBERS -- 10-YEAR TREASURY YIELD BREAKS 3% -- RESISTANCE LEVELS COME INTO PLAY FOR DIA, QQQ AND SPY -- FINANCE LEADS LOWER AS SUPPORT BREAK HOLDS -- OIL FOLLOWS STOCKS LOWER -- MONEY MOVES INTO GOLD
TREASURIES SURGE ON WEAK ECONOMIC NUMBERS... Link for todays video. US Treasury Bonds continued their relentless rise after two economic releases came up short. First, ADP Employer Services reported that private sector job growth for May increased the smallest amount since September. Second, the Institute for Supply Management (ISM) reported a drop in manufacturing activity. The ISM Index fell from 60.4 to 53.5 in May. Even though the number was below consensus, the index remains above 50, which is indicative of economic growth. Trouble starts when the index moves below 50. Chart 1 shows the 7-10 year Bond ETF (IEF) reacting to the news with a surge to its highest level since mid November. IEF is up over 5% since early April and up over 7% since early February. Bonds benefit from signs of economic weakness because this keeps downward pressure on interest rates. The Fed is not going to raise rates if the economy falters. Admittedly, the sharp advance in bonds is a concern for the stock market because it hints at economic weakness or some sort of slow down.
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Chart 1
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Chart 2
Chart 2 shows the 10-year Treasury Yield ($TNX) moving below 30 (3%) for the first time since early December. Elliott Wavers may notice a potential ABC correction brewing. Also notice that the October-February advance shows a clear 5-wave sequence. While the end of Wave C could be in the 29 area (2.9%), we have yet to see any signs of support or a bullish reversal.
TLT SURGES TOWARDS KEY RETRACEMENT... Chart 3 shows the 20+ year Bond ETF (TLT) with a possible ABC advance underway. A 62% retracement of the prior 5-wave decline would extend to the 99 area. Broken support from the September low marks resistance in the 98 area. TLT shows no signs of weakness though. Some sort of reversal candlestick or pivot is needed before taking this resistance zone seriously.
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Chart 3
RESISTANCE LEVELS HOLD FOR DIA, QQQ AND SPY... After a four day bounce, resistance levels came into play for many ETFs. Todays sharp declines reinforce these resistance levels, which now become the levels to beat. Chart 4 shows the Dow Industrials SPDR (DIA) hitting resistance from the upper trendline of a falling flag. With a hanging man on Tuesday and long black candlestick on Wednesday, the ETF has clearly failed at the flag trendline. A move above Tuesdays high is needed to break flag resistance. Chart 5 shows the Nasdaq 100 ETF (QQQ) hitting resistance from the mid May reaction high and broken support. QQQ gapped up on Tuesday and is currently back in the gap zone with Wednesdays decline. Chart 6 shows the S&P 500 ETF (SPY) breaking above the flag trendline on Tuesday, but moving back below this trendline on Wednesday. The ETF met resistance from the prior reaction high around 135. A move above this level is now needed to fully break flag resistance.
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Chart 4
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Chart 5
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Chart 6
FINANCE LEADS LOWER AS SUPPORT BREAK HOLDS... Once again, it was the Finance SPDR (XLF) leading the sectors lower. Finance has been the weakest sector since February and shows no signs of turning around. Even though SPY and the other major index ETF hit new 52-week highs five weeks ago, relative weakness in the finance sector undermined the milestone. Chart 7 shows XLF breaking triangle support in mid May and broken support turning into resistance. XLF surged back to the broken support zone with a four day move, but gave almost all of it back with Wednesdays long black candlestick. The indicator window shows the Price Relative (XLF:SPY ratio) hitting a new low yet again. Chart 8 shows the Regional Bank SPDR (KRE) taking a similar beating on Wednesday. The ETF also broke triangle support in mid May and this support zone turned into a resistance zone.
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Chart 7
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Chart 8
OIL FOLLOWS STOCKS LOWER... The positive correlation between stocks and oil remains in play as oil moved lower along with the stock market today. This makes sense because stocks are moving lower because of economic concerns. A slowing economy would mean less demand for oil, which would in turn weigh on prices. Chart 9 shows the 12-Month US Oil Fund (USL) surging above 46 on Tuesday and then giving it all back on Wednesday. There is still considerable support in the 44-45 area, but a rebound in stocks will likely be needed to push oil higher again.
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Chart 9
MONEY MOVES INTO GOLD ETF... The Gold SPDR (GLD) seems to attract money no matter what the crisis. Gold was knocked back when the Dollar surged in early May, but quickly found support and is now poised to challenge its May high. Chart 10 shows GLD finding support in the 142.5 area with a pair of bounces. GLD also formed a triangle in the process and broke triangle resistance with a surge eight days ago.
