FINANCE SECTOR SOARS ON CENTRAL BANK ACTION -- REGIONAL BANKS OUTPERFORMING BIG BANKS -- S&P 500 ETF SURGES ABOVE BROKEN SUPPORT -- QQQ CONTINUES TO SHOW RELATIVE WEAKNESS -- SEMICONDUCTOR HOLDRS SURGES ABOVE BROKEN SUPPORT
FINANCE SECTOR SOARS ON CENTRAL BANK ACTION... Link for todays video. Stocks soared on Wednesday as five central banks lowered interest rates on dollar swaps. China also cut its reserve requirement for banks. A dollar swap is basically an emergency dollar loan to foreign banks. The European debt crisis created a liquidity crunch that put a strain on the global financial system. These coordinated cuts are designed to ease the strains put on the global financial system. Unsurprisingly, the big banks were one of the leading groups. Chart 1 shows the Finance SPDR (XLF) surging over 4% with another gap on Wednesday. This marks the second gap in three days. With this huge move, XLF broke the late October trendline and challenged broken support, which turns into resistance. Despite a higher low in November and surge above the late October trendline, XLF remains relatively weak overall. The Price Relative turned up today, but hit a new low earlier this week and remains in a downtrend since June.

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Chart 1
Chart 2 shows weekly candlesticks for a longer term perspective. XLF broke support with a big decline in August, surged back above 14 in October and then plunged again in November. Even though this weeks bounce is impressive, the overall trend remains down and XLF continues to underperform the broader market.

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Chart 2
REGIONAL BANKS OUTPERFORMING BIG BANKS... While the Finance SPDR chart does not impressive me, the chart for the Regional Bank SPDR (KRE) does show some promise. Chart 3 shows KRE breaking resistance with the October surge and then correcting with a falling wedge in November. Notice that this wedge retraced around 50% of the prior advance. Both the retracement amount and pattern are typical for corrections. Todays big gap and wedge breakout signal a continuation of the October advance. The gap holds the key. A strong surge and breakout should hold. Failure to hold todays gap would put KRE back in bear mode. The indicator window shows the KRE:XLF ratio. This is the Price Relative used to measure relative strength. KRE has been outperforming XLF since late September. Notice how the Price Relative broke resistance and moved steadily higher the last two months.

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Chart 3
Chart 4 shows weekly candlesticks over the last two years. KRE has been moving lower within a large falling channel. The ETF surged off channel support with a big move in October. The upper trendline and summer high marks the next big resistance zone around 26. In the indicator window, the Price Relative turned up in mid September and broke the trendline extending down from April 2010. KRE is starting to show some relative strength by outperforming the broader market for a two months.

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Chart 4
S&P 500 ETF SURGES ABOVE BROKEN SUPPORT... Chart 5 shows the S&P 500 ETF (SPY) moving back above the broken support zone with a 6+ percent surge this week. The move is impressive because SPY managed to negate the support break. In fact, this move may even be enough to put the October breakout back in play. Whoa cowboy, not so fast there. After a little redrawing and rethinking, it is possible that last weeks dip below 118 was an overshoot. It is also possible that a falling flag formed over the last 4-5 weeks. If this is indeed the case, then a follow through above 126 would break flag resistance and signal a continuation higher. Yes, I am going to require some follow through to todays central-bank-induced surge. Also note that the TRIX (10,6) has yet to break its signal line. This is a lagging indicator because it is based on 10-day triple smoothed exponential moving average.

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Chart 5
Chart 6 shows weekly prices for some perspective. At this point, I still give the long-term bias to the bears. First, SPY formed an extended top from January to July and broke support with a sharp decline in August. Even though the ETF formed two lows around 110 and broke back above 125 in October, the breakout quickly failed as SPY plunged below 120 last week. Maybe last weeks decline was an aberration. Maybe not. In any case, I still think the big topping pattern and support break are the dominant features. In the indicator windows, notice that 18-period Aroon Down (red) moved above Aroon Up (up) to confirm the support break. Also note that the TRIX was below its signal line and moving lower. Aroon remains on a bear signal, but the TRIX moved above its signal line. I would be prepared to join the bulls again if Aroon Up moves above Aroon Down.You can read more on TRIX and Aroon in our ChartSchool.

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Chart 6
QQQ CONTINUES TO SHOW RELATIVE WEAKNESS ... Most of todays focus was on banking stocks, but chartists should not forget about other key areas of the market. Chart 7 shows the Nasdaq 100 ETF (QQQ) surging back to broken support and breaking back above this level with a strong close. Despite this surge, QQQ is not quite keeping pace with the broader market. The indicator window shows the Price Relative (QQQ:SPY ratio) moving to a new low for the month. This confirms relative weakness since mid October.

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Chart 7
SEMICONDUCTOR HOLDRS SURGES ABOVE BROKEN SUPPORT... In a similar vein as QQQ, chart 8 shows the Semiconductor HOLDRS (SMH) surging above broken support with a move above 30.50 on Wednesday. After the October surge, the ETF consolidated between 30.50 and 32.70. SMH broke consolidation support with last weeks sharp decline and broken support turned into resistance. Follow through above broken support negates this support break. As with QQQ, I am concerned with relative weakness in SMH. The indicator window shows the Price Relative breaking down in November.

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Chart 8
GERMAN DAX BREAKS WEDGE TRENDLINE... European banking stocks benefitted from the coordinated central bank action with outsized gains on Wednesday. Chart 9 shows the German DAX Index ($DAX) surging almost 5% with a move above 6000. The index is up over 10% in the last three days alone. On the price chart, the DAX broke the falling wedge trendline and moved back above its support break. This breakout is bullish until proven otherwise with a move back below 5700. The indicator window shows the Price Relative ($DAX:$SPX ratio). The DAX was underperforming the S&P 500 since late October, but the Price Relative turned up sharply the last few days and the DAX has started to outperform. Chart 10 shows the French CAC Index ($CAC) also surging over 10% the last three days.

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Chart 9
