SPY FILLS TUESDAYS GAP -- MARCH LOWS COMING INTO PLAY FOR QQQ -- BREADTH INDICATORS REFLECT BROAD SELLING PRESSURE -- OIL PLUNGES ON ECONOMIC REPORT AND STRONG DOLLAR -- DOLLAR ETF FORMS HIGHER LOW AS MOMENTUM IMPROVES
SPY FILLS TUESDAYS GAP ... Link for todays video. Stocks were sharply lower on Wednesday as the risk-off trade returned after Tuesdays sharp advance. The Nasdaq 100 ETF (QQQ) and S&P 500 ETF (SPY) broke below Mondays lows with sharp declines on Wednesday. Chart 1 shows SPY failing to hold Tuesdays gap and filling it with a gap and long black candlestick. The March lows now mark the next potential support level in the 125-126 area. With this weeks failed bounce, SPY established a resistance level at 130. A recovery and break above this level would put the bulls back in play. The indicator window shows the Percent Price Oscillator (PPO) moving below its signal line the first week of May and remaining below its signal line. PPO is getting into oversold territory with a move below 1% this week. This means the 12-day EMA of SPY is more than 1% below the 26-day EMA of SPY.
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Chart 1
MARCH LOWS COMING INTO PLAY FOR QQQ... Chart 2 shows QQQ moving towards support from the late December and mid March lows. The ETF is down some 7.5% from its May high. As with SPY, this support zone marks the next potential stopping point for the decline. As far as any reversal is concerned, Tuesdays reaction high at 55.5 marks the first resistance level to watch for a successful support test AND a short-term breakout. The indicator window shows the Commodity Channel Index (CCI) in oversold territory. CCI dipped below -100 three times in the last five weeks. A higher low formed in June for a small bullish divergence. Even so, CCI needs to break above its late May high to turn momentum bullish again.
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Chart 2
BREADTH INDICATORS REFLECT BROAD SELLING PRESSURE... The June decline has not been your average garden variety sell-off. Breadth on both the NYSE and Nasdaq has been decided negative throughout the month. The charts below show the underlying indices in the main windows with the Net Advances Ratio and the Net Advancing Volume Ratio in the indicator windows. These ratios were created by dividing Net Advances by Total Issues and Net Advancing Volume by Total Volume. This can be done by entering two symbols separated by a colon in the parameters box. $NYAD:$NATOT shows the Net Advances Ratio for the NYSE. Users can click on these charts to see the settings and save them to their favorites list. Moves above +.50 show broad buying pressure, while moves below -.50 reflect broad selling pressure. As the charts show, selling pressure in June has been as strong or even stronger than selling pressure in March. Notice how many times these ratios moved below -.50 in June. And the month is not even over yet. The thin blue line shows the 10-day EMA for these indicators. At the very least, these 10-day EMAs need to turn positive for breadth to be able to facilitate a sustainable bounce. Charting Hint: Under Indicators/Style, users can change Area to Invisible to hide the area plot and see the 10-day EMA in more detail.
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Chart 3
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Chart 4
OIL PLUNGES ON ECONOMIC REPORT AND STRONG DOLLAR... Oil was hit with weakness in the stock market and strength in the Dollar. A couple of weak economic reports also weighed on crude. The Empire State Manufacturing Survey and Industrial Production were both weaker than expected. A slowing economy means less demand for oil-related products. Chart 5 shows the 12-Month US Oil Fund (USL) breaking flag support on Monday, bouncing on Tuesday and continuing sharply lower on Wednesday. The January lows mark the next support level around 41.5-42.
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Chart 5
DOLLAR ETF FORMS HIGHER LOW AS MOMENTUM IMPROVES... Chart 6 shows the US Dollar Fund (UUP) forming a higher low and surging over the last few days. The first step to a trend reversal is a higher low. A move above the May high would forge a higher high would be signal the start of an uptrend. RSI is shown in the indicator window. Notice that RSI broke above the 50-60 resistance zone in May and held above 30 in June. Upside momentum hit a multi-month high in May as downside momentum decreased in June. This is also a recipe for a trend change. Strength in the Dollar stems from weakness in the Euro, which accounts for over 55% of the US Dollar Fund. Chart 7 shows the Euro Currency Trust (FXE) with a lower high and sharp decline the last six days. The next support zone resides around 137.5-138.
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Chart 6
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Chart 7
BONDS SURGE AS MONEY SEEKS RISK AVOIDANCE... Bonds form the final piece of the risk-off puzzle. Chart 8 shows the 20+ year Bond ETF (TLT) recapturing all of Tuesdays losses with a long white candlestick. What a difference a day makes. TLT moved sharply lower on Tuesday as stocks surged, but the ETF found support near the early June low. Moreover, todays surge reinforces support at 95. A move below this level is needed for a sustainable trend reversal. The indicator window shows TLT relative to the S&P 500 ETF. This Price Relative bottomed in February, formed a higher low in April and surged to a 2011 high this month. Bonds are outperforming stocks in 2011. Chart 9 shows the 30-year Treasury Yield ($TYX) hitting resistance at 4.3%. A break above this level is needed to reverse the downtrend in yields.
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Chart 8
