WEEKLY INDICATORS REMAIN BULLISH FOR SPY -- IGNORING THE NOVEMBER LOW TO MARK KEY SUPPORT -- NETWORKING ISHARES RETRACES 62% WITH FALLING WEDGE -- NYSE AD LINE AND AD VOLUME LINE REMAIN STRONG -- NYSE NET NEW HIGHS CONTINUES TO EXPAND
WEEKLY INDICATORS REMAIN BULLISH FOR SPY... Link for todays video. The S&P 500 ETF (SPY) extended its yearend rally with a move above 127.5 this week. Chart 1 shows weekly candlesticks over the last two and a half years. Focusing on price action since July, we can see that SPY broke down with a sharp four week decline in late July and early August. A low form in August and then there was a successful test of this low the first week of October. After spiking below 108, SPY mounted a 4-week surge that broke resistance and forged a higher high. A deep November dip followed this surge, but SPY ultimately formed a higher low and is now poised to exceed its October high. At this point, we have a series of rising peaks and rising troughs since early October. The cup is half full (bullish) and the indicators confirm this.
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Chart 1
The indicator windows show the 18-period Aroon Up/Down and the TRIX Oscillator (10,6). You can read more about these in our ChartSchool. These indicators can be combined to generate bullish and bearish signals. A bullish signal is in affect when Aroon Up (green) is above Aroon Down (red) and TRIX is above its signal line (green lines). A bearish signal is in effect when Aroon Down is above Aroon Up and TRIX is below its signal line. These indicators are currently in bull mode as Aroon Up broke above Aroon Down in early December and TRIX is above its signal line. One never knows how long a signal will last, but we know what it would take to reverse this signal.
CUTTING OUT THE NOVEMBER LOW TO MARK KEY SUPPORT... Chart 2 shows daily prices over the last six months. The chart pattern looks quite bullish provided we ignore the November low. The October surge produced a breakout above the August-September highs, but SPY failed to hold this breakout with the November decline below 120. Despite this failure, the ETF immediately bounced back and then held the 120 level in December. Ignoring this November low, the pattern looks like a falling wedge and the late December breakout signals a continuation of the October surge. At the very least, the mid December low re-established a key support level at 120. Another break below 120 would reverse this uptrend.
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Chart 2
NETWORKING ISHARES RETRACES 62% WITH FALLING WEDGE... The Networking iShares (IGN) is at an interesting juncture as it challenges a trendline extending down from the March 2011. Chart 3 shows IGN declining to support in August and bouncing off this support level twice. The second bounce met resistance at the 2011 trendline, but the ETF is holding above the prior lows. The indicator window shows the Aroon brothers again. Aroon Down declined all the way below 20 and Aroon Up is hovering around the zero line. Something needs to give here - and possibly soon. The first one to surge above 50 will provide the next directional signal for these indicators.
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Chart 3
The daily chart shows IGN with a falling wedge that retraced 61.80% of the prior advance. First, notice that IGN formed a double bottom and briefly broke double bottom resistance in late October. Even though this breakout did not hold, the depth of the current retracement and the pattern are both typical for corrections. IGN is attempting to break above the upper trendline this week. A move back below 27 would throw cold water on this breakout attempt. The indicator window shows the 20-day Slope, which is the Slope of the 20-day Linear Regression. After being in negative territory for 5-6 weeks, the indicator is poking its head into positive territory this week.
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Chart 4
NYSE AD LINE AND AD VOLUME LINE REMAIN STRONG... Chart 5 shows the NYSE AD Line ($NYAD) challenging its November high and within striking distance of its summer highs. First, note that the thin gray line is actually NYSE AD Line and the thick black line is the 5-day SMA. I am focusing on the moving average to smooth the daily fluctuations and volatility. There are two trend reversals visible on this chart: a bearish support break in early August and a bullish breakout in mid October. The November decline found support near the October breakout and a higher low formed in late December. The most recent surge pushed the indicator above its mid November high and the trend is up overall. Key support is based on the mid December low.
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Chart 5
Chart 6 shows the NYSE AD Volume Line ($NYUD) moving higher since early October. The 5-day SMA formed a higher low formed in late October and moved above the November high with a surged the last two weeks. Key support is based on the mid December lows.
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Chart 6
NYSE NET NEW HIGHS CONTINUES TO EXPAND... Chart 7 shows the Cumulative Net New Highs Line for the NYSE ($NYHL). This line is cumulative measure of Net New Highs (new 52-week highs less new 52-week lows). The line rises when Net New Highs are positive and falls when Net New Highs are negative. The logic is simple. The bulls have the edge when there are more new highs and the bears have the edge when there are more new lows. After falling sharply from early August to early October, the indicator turned up in late October and moved above its 10-day EMA. There was a brief dip back below the 10-day EMA in late November, but the indicator turned back up and the advance accelerated the last few weeks. New highs on the NYSE are expanding and this is bullish for the market overall. A move below the 10-day EMA would provide the first sign of weakness.
