RUSSELL 2000 MAKES A RUN FOR RESISTANCE -- NET NEW HIGHS CONFIRM MARKET STRENGTH -- CRUDE OIL CHALLENGES FALLING WEDGE RESISTANCE -- HEATING OIL FORMS BULLISH PENNANT -- OIL & GAS EQUIPMENT/SERVICES SPDR TESTS BROKEN RESISTANCE
RUSSELL 2000 MAKES A RUN FOR RESISTANCE... Link for todays video. Small-caps are showing upside leadership in early trading on Monday, which is important because small-caps have been lagging large-caps since early February. A breakout in small-caps and return to relative strength would be positive for stocks in general. Chart 1 shows the Russell 2000 ($RUT) surging above 820 last week and challenging the February high on Monday. The overall trend is clearly up as prices move from the lower left to the upper right of the chart. The early March low established support just above 780 so I will just mark my support line at 780. The indicator window shows the Price Relative ($RUT:$SPX ratio) moving lower since early February to confirm relative weakness. Look for a break above .60 to signal relative strength in the Russell 2000 again.
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Chart 1
Chart 2 shows the S&P 500 Equal Weight Index ($SPXEW) breaking its February highs and hitting a 52-week high last week. Even though the index looks overbought after a 20% advance since late November, there are simply no signs of sustained selling pressure. The early March low marks key support at 2000.
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Chart 2
NET NEW HIGHS CONFIRM UNWAVERING MARKET STRENGTH... Net New Highs is a breadth indicator based on new 52-week highs and new 52-week lows (new highs less new lows). The indicator window in chart 3 shows NYSE Net New Highs as a percentage of total issues. This done by dividing Net New Highs by total issues ($NYHL:$NYTOT). This percentage version is better suited to compare current levels with past levels. Notice that Net New Highs Percent has been largely positive since late November (green oval). A virtual absence of new lows is testament to underlying strength in the stock market. The main chart window shows Cumulative Net New Highs, which is simply a running total of each days value. Hence, the cumulative line rises when Net New Highs are positive and falls when negative. This cumulative line turned up and broke above its 10-day EMA in late November. It has been rising for over three months now and it would take a move below the 10-day EMA to put it in bear mode. Chart 4 shows the Cumulative Net New Highs Line for the Nasdaq turning up the second week of January and remaining in an uptrend.
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Chart 3
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Chart 4
CRUDE OIL CHALLENGES FALLING WEDGE RESISTANCE... Strength in the Dollar has weighed on commodities the last few weeks, but Spot Light Crude ($WTIC) is making a run at wedge resistance with a surge above $107 today. First, note that I am focusing my analysis on Spot Light Crude and not the US Oil Fund (USO). When possible, it is preferable to analyze the actual commodity first and then apply the findings to the ETF. Chart 5 shows Spot Light Crude breaking resistance with a surge in mid February. An inverse head-and-shoulders formed from mid November to mid February and the neckline breakout signaled a continuation of the prior advance. Neckline resistance turned into first support and the ETF tested with zone with the March low around 104. Overall, the three week decline looks like a falling wedge or flag, which is a bullish continuation pattern. This means an upside breakout would signal a continuation of the February advance. Crude is up around 75 cents in early trading on Monday, which puts it around $107.75 and just above the upper trendline.
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Chart 5
The indicator window shows Spot Light Crude (black), the S&P 500 (red) and the US Dollar Index (green). Notice that oil weakened as the Dollar bottomed and turned up at the end of February (green arrow). Strength in the stock market is bullish for oil because it points to an expanding economy. Strength in the Dollar countered this positive though and we have yet to see a decisive breakout. Chart 7 shows the US Oil Fund (USO) with similar characteristics. Notice that RSI is firming just above its support zone (40-50).
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Chart 6
HEATING OIL FORMS BULLISH PENNANT... Elsewhere in the energy complex, chart 7 shows Spot Heating Oil ($HOIL) forming a small triangle or pennant within an uptrend. Chart 8 shows Spot Unleaded Gasoline ($GASO) keeping pace with the S&P 500 since December 19th. Except for a brief period in early November, the Correlation Coefficient between gasoline and stocks has been strongly positive the last six months.
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Chart 7
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Chart 8
OIL & GAS EQUIPMENT/SERVICES SPDR TESTS BROKEN RESISTANCE... What happens with oil will likely make-or-break the recent breakout in the Oil & Gas Equipment/Services SPDR (XES). Chart 9 shows XES breaking triangle resistance in early February and this breakout area turning into support in March. The ETF declined back to this area in early March and bounced back above 38 the last two weeks. The breakout is holding so far and this March low becomes the line in the sand. Failure to hold and a break below this support level would be quite negative for XES. The indicator window shows the Price Relative moving lower the last few weeks as XES underperforms the S&P 500. A breakout here is also needed to show relative strength again. Chart 10 shows the Energy SPDR (XLE) with similar characteristics.
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Chart 9
