BIG TECHS LEAD MARKET HIGHER -- SMALL-CAP ETF HOLDS SHORT-TERM BREAKOUT -- AMAZON, COMCAST AND MICROSOFT POWER QQQ -- SEMI HOLDRS FORMS INSIDE DAYS AT SUPPORT -- TEXAS INSTRUMENTS AND INTEL HOLD KEY TO SMH
BIG TECHS LEAD MARKET HIGHER... Link for todays video. For the third time in five sessions, the Nasdaq 100 ETF (QQQ) formed an exceptionally large white candlestick. A candlestick is white (hollow) when the close is above the open or black (filled) when the close is below the open. The longer the candlestick, the more distance from open to close. Long white candlesticks signal strong buying pressure because prices moved significantly higher after open and prices closed near the higher for the day. With this move, QQQ is once again battling resistance from the mid June high and the prior long white candlesticks.
(click to view a live version of this chart)
Chart 1
The indicator window shows the Commodity Channel Index (CCI) edging higher. While I did not miss the bullish divergence from late May to mid June, I am more interested in the zero line and prior resistance. A break above the May 31st high just above zero would turn this indicator bullish again. I consider the momentum cup half full (bullish) when CCI is positive and half empty (bearish) when CCI is negative.
SMALL-CAP ETF HOLDS SHORT-TERM BREAKOUT... It has been one heck of a battle, but the Russell 2000 ETF (IWM) continues to hold last weeks short-term breakout. I featured this chart on Wednesday as small-caps led the market surge last Tuesday. Despite a weak close on Wednesday and a weak open on Thursday, the ETF managed to close above the resistance breakout five days in a row (today included). I am not ready to count the bulls out just yet. Tuesdays gap and the breakout mark a support zone around 79-79.5 and a close below this level would argue for a reassessment.
(click to view a live version of this chart)
Chart 2
As you can see, it is possible that IWM is caught between a rock and a hard place. Although not the most conventional Head-and-Shoulders pattern, the April-May peaks line up to form such a pattern. IWM broken support with a plunge below 81 and broken supports turn into the resistance zone. IWM is currently battling this resistance zone as it holds above short-term support. I still give the bulls the edge as long as the ETF does not close below 79.
AMAZON, COMCAST AND MICROSOFT POWER THE NASDAQ 100... As its name implies, the Nasdaq 100 ETF (QQQ) is based on an index of 100 stocks from the Nasdaq. From www.invescopowershares.com, the top 10 components account for just over 50% of the ETF. The top three (Apple, Microsoft, Oracle) account for around 27%. As you can see, this ETF/index is clearly driven by the big boys. Looking through the top ten, we can easily see where the gains are coming from. Chart 3 shows Amazon (AMZN) with a falling wedge that found support around 185. After a false break below support (bear trap), the stock broke resistance at 192.5 last week and surged above 200 today. Chart 4 shows Microsoft (MSFT) consolidating below a support break that turned resistance at 25. The stock broke this level with a long white candlestick today. Chart 5 shows Comcast (CMCSA) finding support from the March low and surging above short-term resistance today.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
SEMICONDUCTOR HOLDRS FORMS INSIDE DAYS AT SUPPORT... Semis could hold the key to the technology sector in the coming days. Chart 6 shows the Semiconductor HOLDRS (SMH) hitting support from the 2011 lows and firming the last five days. After a long white candlestick on Thursday, the ETF formed two inside days. The candlesticks of the last two days were within the range of Thursdays candlestick. This signals indecision or a consolidation because price action is confined. A break from this confinement will provide the next directional clue. A break above resistance at 33.50 would be short-term bullish and argue for at least a retracement of the May-June decline. Conversely, a break below last weeks low would be short-term bearish.
(click to view a live version of this chart)
Chart 6
TEXAS INSTRUMENTS AND INTEL HOLD KEY TO SMH... Texas Instruments (21.17%) and Intel (19.44%) are by far the two biggest components in the Semiconductor HOLDRS. SMH is not going anywhere without these two. Chart 7 shows Intel surging in mid April and then retracing 62% with a decline back to the 21.25 area. This is a Fibonacci number found using the Fibonacci Retracements Tool. In addition to retracement support, there is potential support from the top of the gap zone. The stock firmed the last 2-3 weeks and a break above short-term resistance would reverse the five week slide. Chart 8 shows TXN taking a massive hit in June and breaking below the January lows. After becoming way oversold in mid June, the stock firmed last week with a pair of white candlesticks. A move above last weeks high would break short-term resistance and lift SMH.
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
20-YEAR BOND ETF DECLINES SHARPLY FROM RESISTANCE... Treasury bonds moved sharply lower on Monday with the 20+ year Bond ETF (TLT) leading the bond ETFs down. Todays news was mixed. Traders expect the Greek parliament to pass an austerity package this week. This reduced the demand for US Treasuries as a safe-haven. Media reports are also suggesting that the Fed will buy another $300 billion of Treasuries when QE2 ends. Chart 9 shows the 20+ year Bond ETF (TLT) hitting resistance in the 97.8 area the entire month. TLT established a clear support level with two lows at 95 in June. Technically, the trend is still up as long as these lows hold. A break below 95 would argue for further weakness that could provide a boost for stocks.
(click to view a live version of this chart)
Chart 9
The indicator window shows SPY to compare price movements. Overall, there appears to be a negative correlation between the two. Stocks rise as bonds decline, while stocks decline as bonds rise. The last two weeks of April were off, but this negative relation was clearly on track in May. Both stocks and bonds have been trading flat the last three weeks. Should this inverse relationship continue, a breakdown in bonds would be positive for stocks and could lead to an upside breakout in SPY.
Before getting too bearish on bonds, note that the 7-10 year Bond ETF (IEF) remains in a clear uptrend with a new 2011 high just last week. Overall, IEF is trading near resistance from the October-November highs. Based on the June 1st surge and mid June reaction low, I would mark key support in the 96-96.5 area.
