NETWORKING ISHARES BREAKS DOUBLE BOTTOM RESISTANCE -- HIGH YIELD BOND ETFS CHALLENGE SUMMER HIGHS -- BREADTH IMPROVES AS NEW 52-WEEK HIGHS EXPAND -- NASDAQ AND NYSE AD VOLUME LINES BREAK RESISTANCE

NETWORKING ISHARES BREAKS DOUBLE BOTTOM RESISTANCE... Link for todays video. Chart 1 shows the Networking iShares (IGN) gapping up and breaking Double Bottom resistance with a surge above 29. I showed this chart on August 5th as the ETF had just formed a big bullish engulfing at support. IGN extended above 28, consolidated and then continued higher the last two days. The close above 29 confirms the Double Bottom and targets further strength towards 33-34. The height of the pattern (~29 - ~24 = ~5) is added to the breakout for a target (29 + 5 = 34). The gap and smaller breakout turn into first support around 28. A decline below this level would call for a reassessment. Relative weakness in IGN remains a concern. The indicator window shows the Price Relative flattening out since early August, but not breaking out and moving higher.

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Chart 1

HIGH YIELD BOND ETFS CHALLENGE SUMMER HIGHS... Want to know the prospects for the domestic economy? Check out the performance of junk bonds. These fixed income securities trade more like stocks than bonds. This is because their prospects are tied to the economy. A strong and healthy economy improves the chances of payback, while a weak and struggling economy improves the chances for default. Junk bonds are like the canaries in the economic coal mine. Chart 2 shows the iShares High-Yield Bond ETF (HYG) surging from 78 to 91 within the last four weeks. This ETF is up over 10% from its October low and already challenging the summer highs. In fact, HYG briefly broke above its summer highs on Thursday. This is a bullish vote for the economy and the stock market. The indicator window shows the Correlation Coefficient for the S&P 500 and HYG. These two have a strong positive correlation. Chart 3 shows the High-Yield Bond SPDR (JNK) with similar characteristics.

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Chart 2

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Chart 3

BREADTH IMPROVES AS NEW 52-WEEK HIGHS EXPAND... A number of market breadth indicators turned bullish over the last 1-2 weeks. These confirm the breakouts in the S&P 500 and other indices. NYSE Net New Highs turned positive in mid October and the 10-day EMA moved into positive territory late this month. Chart 4 shows NYSE Net New Highs ($NYHL) in the lower indicator window. Notice how Net New Highs turned negative in late July and dipped deeper into negative territory in late September and early October. The indicator edged into positive territory in mid October and steadily improved as the rally extended into late October. Also notice that the 10-day EMA turned positive for the first time since early August. This is a, well, positive development. The Cumulative Net New Highs line followed suit by moving above its signal line for the first time since early August.

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Chart 4

Chart 5 shows Nasdaq Net New Highs ($NYHL) in the indicator window. Net New Highs turned negative in late July and remained negative until late October. The 10-day EMA also turned negative in late July and is only just now making it back into positive territory. It took a while, but new 52-week highs on the Nasdaq are starting to expand. Note that this is being done without Amazon, Apple and Netflix. Despite this weeks surge, these stocks did not record new 52-week highs last week. The main chart window shows the Cumulative Net New Highs line turning up and edging above is 10-day EMA (just barely).

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Chart 5

NASDAQ AND NYSE AD VOLUME LINES BREAK RESISTANCE... Chart 6 shows the Nasdaq AD Volume Line ($NAUD) breaking through resistance from the August-September peaks. This breakout reverses the breakdown that was seen in early August. The AD Volume Line is a cumulative line for Net Advancing Volume, which is the volume of advancing stocks less the volume of declining stocks. Instead of total volume, I prefer to use the AD Volume Line to measure the net between buying pressure and selling pressure. Traditional chart analysis can be applied to this indicator. Chartists can look for support/resistance breaks, drawn trendlines or apply basic trend analysis techniques. With the breakout and higher peak the trend is up for this breadth indicator and that is bullish for the Nasdaq. Chart 7 shows the NYSE AD Volume Line ($NYUD) also breaking resistance with a big surge this month.

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Chart 6

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Chart 7

NASDAQ AD LINE FALLS SHORT, BUT NYSE AD LINE EYES SUMMER HIGHS... Chart 8 shows the Nasdaq AD Line ($NAAD) surging form -100K to -90K. The actual level is not important because it depends on when the calculation is started. However, we can see that the Nasdaq gained around 10,000 Net Advances from the October low to this weeks high. That is a big move that almost made up for the losses suffered from mid August to late October. While impressive, the indicator has yet to break above the two August peaks or exceed its 125-day EMA. This indicator is lagging.

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Chart 8

While the Nasdaq AD Line lags, the NYSE AD Line ($NYAD) leads. Chart 9 shows the NYSE AD Line holding just above its August low for a small bullish divergence and surging through resistance with a big move this month. The indicator is one of the few that is close to its summer highs. The rank-and-file stocks of the NYSE are showing relative strength in October. Users can click on any of these charts to see the settings and save them to their favorites.

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Chart 9

The AD Line favors small and mid cap stocks. An advance counts as +1 and a decline counts as -1, no matter how big or small the stock. In contrast, the AD Volume Line favors large-caps because large-caps typically dominate the most active list. On Friday, a decline in Microsoft accounted for -57.68 million shares of volume to the AD Volume Line. An advance in Teco Energy (TECO) accounted for +1.54 million shares of volume to the AD Volume Line. For the AD Line, the decline in behemoth Microsoft (-1) was negated by the advance in little Teco Energy (+1).