QQQ PROVIDES THE LONE BREAKOUT -- SPY FORMS LARGE TRIANGLE -- INDUSTRIALS AND FINANCE LAGGING THE MARKET -- US DOLLAR FUND BREAKS TRIANGLE SUPPORT -- EURO TRUST CHALLENGES WEDGE RESISTANCE
QQQ PROVIDES THE LONE BREAKOUT... Link for todays video. It remains a story of two stock markets, or more. The Nasdaq 100 ($NDX) broke above its 2011 highs with a surge above 59.5 on Friday. The ETF is struggling today, but largely holding above these highs. New highs are bullish because they reflect strong buying pressure, buying pressure that was strong enough to break the prior high. Despite new highs in QQQ, the other major index ETFs have yet to confirm with new highs of their down. Chart 1 shows QQQ breaking above consolidation resistance. The indicator window shows the Price Relative breaking the late November trendline and moving higher the last five weeks.
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Chart 1
Chart 2 shows the Russell 2000 ETF (IWM) failing to reach its April-July highs with last weeks bounce. While the ETF remains far short of a bearish break down, it is starting to show relative weakness with this short-fall. The Price Relative (IWM/SPY Ratio) formed a lower high in early July and turned lower the last two weeks.
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Chart 2
SPY FORMS LARGE TRIANGLE ... Chart 3 shows the S&P 500 ETF (SPY) with a large triangle taking shape the last five months. The ETF surged from late August to late February and then moved into a consolidation phase. An upside breakout signals a continuation higher, while a downside break would argue for a bearish reversal. Those looking for an earlier momentum signal can watch MACD support levels. Notice how reaction lows marked support levels over the last nine months (blue lines). A break below the July low in MACD would signal a downturn in momentum.
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Chart 3
INDUSTRIALS AND FINANCE LAGGING THE MARKET... Stocks bottomed in mid June and moved sharply higher with all nine sectors gaining over the last five weeks. As the S&P Sector PerfChart shows, the Energy SPDR (XLE), Basic Materials SPDR (XLB), Technology ETF (XLK) and Consumer Discretionary SPDR (XLY) are the four leaders, by far. Relative strength in XLY and XLK is very positive for the market. The consumer discretionary sector represents the most economically sensitive sector. The technology sector represents the appetite for risk and the Nasdaq. Investor confidence is strong when these two sectors lead.
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Chart 4
Despite relative strength in two key sectors, we are seeing relative weakness the Industrials SPDR (XLI) and the Finance SPDR (XLF). Industrials, finance, consumer discretionary and technology are the four offensive sectors. Ideally, at least three of these four should show relative strength and market leadership. The fact that only two of the four are showing upside leadership tells me the market is fragmented. In other words, the market is not firing on all cylinders.
US DOLLAR FUND BREAKS TRIANGLE SUPPORT... Judging from the performance of the US Dollar Fund (UUP), it appears that the debt problems in the US are on par with those in Europe. Chart 5 shows UUP forming a triangle within downtrend over the last three months. With a decline the last three days, the ETF broke below the triangle trendline to signal a continuation lower. Chart 6 shows weekly candlesticks with a long-term perspective. UUP surged in early May, but never followed through with a breakout. The April-May highs now mark a clear resistance zone to define this downtrend. A trend reversal is dependent on a break above these highs. RSI also needs to break its resistance level just above 50 to turn momentum bullish.
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Chart 5
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Chart 6
EURO TRUST CHALLENGES WEDGE RESISTANCE... Unsurprisingly, the Euro Currency Trust (FXE) is poised for a breakout as the US Dollar Index breaks support. The Euro accounts for around 57% of the US Dollar Index. Chart 7 shows FXE retracing 50% of the January-April advance with a falling wedge. The ETF surged to the upper trendline over the last two weeks. A breakout would argue for a continuation of the prior advance and a challenge to the 2011 high. The indicator window shows MACD with a bullish divergence and bullish signal line crossover. Chart 8 shows weekly candlesticks confirming major support from the May-July lows. Also Notice how RSI held support in the 40-50 zone from August 2010 to now. These are the levels to watch going forward.
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Chart 7
