DOW AND RUSSELL 2000 ETFS BOUNCE OFF SUPPORT -- QQQ AND XLK CHALLENGE FLAG TRENDLINES -- APPLE TRADES SHARES OUTSTANDING IN 40 DAYS -- CONSUMER DISCRETIONARY SPDR CONSOLIDATES WITH PENNANT -- TREASURIES PULL BACK AFTER FED STATEMENT
DOW AND RUSSELL 2000 ETFS BOUNCE OFF SUPPORT... Link for todays video. The Fed voted to maintain the course and keep rates unchanged, which was hardly a surprise. To paraphrase from its policy statement, the Fed said it expects economic growth to remain moderate for a few quarters and then pick up gradually. Stocks were already up sharply before the announcement and held their gains afterwards. Todays stock market gains came on the heels of Apple (APPL), which reported another blowout quarter. Chart 1 shows two Apple-less index ETFs bouncing off support to keep their uptrends alive. Chart 1 shows the Dow Industrials SPDR (DIA) holding above its March-April lows on Monday and surging above 130 today. A head-and-shoulders pattern is still possible, but a break above last weeks high would remove this possibility. The April bounces reinforce support in the 126.5 area and a break below this level would reverse the current uptrend.
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Chart 1
Chart 2 shows the Russell 2000 ETF (IWM) bouncing off the 78 area with a move the last two days. This also reinforces support at 78 and it would take a break would reverse the current uptrend. IWM may run into some resistance in the 81.5 area from broken support (yellow area). Also note that IWM has been underperforming SPY since early February and the Price Relative has yet to break the red trendline. Relative weakness in small-caps remains a concern.
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Chart 2
QQQ AND XLK CHALLENGE FLAG TRENDLINES... After leading the market lower the first three weeks of April, the Nasdaq 100 ETF (QQQ) swung back into action with a surge off the lower trendline of a falling flag pattern. The falling flag is a bullish continuation pattern that represents a correction within an uptrend. At this point, the flag is still falling because QQQ has yet to break the upper trendline or exceed last weeks high. Follow through to todays move is needed to produce such a breakout. The indicator window in chart 3 shows the Commodity Channel Index (CCI) bouncing from oversold levels, but still in negative territory. Again, follow through is needed here and CCI needs to break into positive territory to turn momentum bullish again. Chart 4 shows the Technology SPDR (XLK) moving above its falling flag trendline with a big gap today.
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Chart 3
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Chart 4
APPLE TRADES SHARES OUTSTANDING IN 40 DAYS... Chart 5 shows Apple (AAPL) opening above 600 and breaking the falling flag trendline. The gap is bullish as long as it holds. Of note, AAPL has some 932 million shares outstanding. The 40-day average for volume is around 27 million shares. This means turnover exceeded 1 billion shares over the last 40 days, which is more than the total of shares outstanding (40 x 27,000,000 = 1,080,000). Clearly, there are lots of traders active in this issue.
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Chart 5
CONSUMER DISCRETIONARY SPDR CONSOLIDATES WITH PENNANT... After gapping down on Monday, the Consumer Discretionary SPDR (XLY) held above its early April low and filled the gap with a surge above 44.50 today. This move reinforces support from the April lows and keeps the uptrend alive. Overall, chart 6 shows a pennant formation taking shape the last few weeks. Pennants are just small triangles that represent a rest within the ongoing trend. In this case, the pennant is potentially bullish because of the prior uptrend. A break above pennant resistance would signal a continuation higher. Even though a pennant in an uptrend is bullish, I will be watching support from the April lows as well. A failed pennant break below these lows would be a bearish development.
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Chart 6
Retail is an important component of the consumer discretionary sector and should be watched closely for clues on XLY. Also note that retail spending drives some 2/3 of GDP, which makes it key to the economy. Chart 7 shows the Retail SPDR (XRT) establishing support with two lows just above 59 this month. Failure to hold todays bounce and a break below these lows would be a bearish development. The indicator window shows the Price Relative (XRT:SPY ratio). XRT outperformed SPY as the ratio rose from mid January to early March. Relative performance stalled since early March and a break down here would be negative.
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Chart 7
TREASURIES PULL BACK AFTER FED STATEMENT... Chart 6 shows the 20+ Year T-Bond ETF (TLT) pulling back on Wednesday with a decline from resistance. The late February high and September trendline mark resistance in the 118.50 area. Overall, a large triangle is taking shape and TLT has gone nowhere since October, almost seven months. Direction is important because treasuries are negatively correlated with the stock market. This means they tend to move in opposite directions. Notice that the Correlation Coefficient (TLT, SPY) spent most of the last 12 months in negative territory. A directionless treasury market could foreshadow a directionless stock market. An upside breakout in treasuries would be negative for stocks because it would suggest that the economy was stalling. Conversely, a reversal at resistance and downside support break would be bullish for stocks. This would suggest that the economic expansion is indeed accelerating and money would shift from treasuries to stocks. Chart 7 shows the 7-10 year T-Bond ETF (IEF) hitting resistance over the last few days.
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Chart 8
