TECHS LEAD HIGHER AS THE NASDAQ 100 ETF BREAKS RESISTANCE -- BROADCOM AND LINEAR TECH LIFT SEMIS -- AMAZON AND EBAY POWER INTERNET ETF -- RAILS AND TRUCKERS LEAD BIG MOVE IN DOW TRANSPORTS -- EUROPEAN STOCKS MOVE LOWER AFTER STRONG OPEN
TECHS LEAD HIGHER AS THE NASDAQ 100 ETF BREAKS RESISTANCE... Link for todays video. US stocks were mixed on Monday, but the technology sector showed some relative strength with good gains. Chart 1 shows the Nasdaq 100 ETF (QQQ) forming an island reversal at the beginning of June, consolidating and then breaking above its early June high. This breakout signals a continuation of the early June surge and argues for further strength towards the next resistance level, which resides in the 65 area. Resistance here stems from broken support and the 50-61.80% retracement zone. The consolidation lows now mark key support at 61.50.
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Chart 1
The indicator window shows the Commodity Channel Index (CCI) breaking resistance the first week of June, edging into positive territory and then surging above +100. While such a move is typically considered overbought, it is also a show of strength because it takes strong upside momentum to push the indicator above +100. Chart 2 shows the Technology SPDR (XLK) with similar characteristics. Despite relative strength today, the XLK:SPY ratio remains flat the last two months. This means XLK is simply keeping pace with the benchmark and the ratio needs to break resistance to show significant outperformance.
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Chart 2
BROADCOM AND LINEAR TECH LIFT SEMIS... Chart 3 shows the Market Vectors Semiconductor ETF (SMH) surging above resistance from the late May and early June highs. Like QQQ, the ETF formed an island reversal in early June and then consolidated. This breakout is short-term bullish and targets a move to the next resistance zone in the 33-33.50 area. Broken supports and the 50-62% retracements mark resistance here. This is going to be a big test because broken support here stems from the neckline of a head-and-shoulders pattern. The indicator window shows the Commodity Channel Index (CCI) breaking out in early June and moving above +100.
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Chart 3
Chart 4 shows BroadCom (BRCM) finding support near the 61.80% retracement line and surging above short-term resistance in early June. After a pennant consolidation last week, the stock broke resistance on Monday to signal a continuation higher.
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Chart 4
Chart 5 shows Linear Technology (LLTC) forming a falling flag after the early June surge. The stock broke flag resistance with a big move on Monday and the next resistance zone is in the 31.50 area.
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Chart 5
AMAZON AND EBAY POWER INTERNET ETF... Chart 6 shows the FirstTrust Internet ETF (FDN) breaking above the trendline extending up from late March. Note that this is an internal trendline because it cuts through the late April high. Nevertheless, it touches three price highs and fits with a falling channel. With a two day surge, FDN broke above this trendline and is starting to show some relative strength. Follow through above the early June highs is needed to complete this reversal.
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Chart 6
Chart 7 shows Amazon (AMZN) surging higher in late April, retracing 50-61.80% of this surge in May and then continuing higher in June. The stock formed a small falling pennant last week and surged above resistance the last two days.
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Chart 7
Chart 8 shows one of the market leaders, EBAY, breaking above resistance from its May highs. Outside of the utilities sector, there are not many stocks trading above their May highs. The EBAY:SPY ratio moved to a new high as well to confirm relative strength.
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Chart 8
RAILS AND TRUCKERS LEAD BIG MOVE IN DOW TRANSPORTS ... Chart 9 shows the Dow Transports surging almost 2% with a move above its late May high. The Average broke the March low in mid May, but has recovered from this support break with a big move above 5150 today. I am concerned because the Average is in the middle of its prior trading range, but it is hard to argue with the this June jump as long as last weeks lows hold.
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Chart 9
The Dow Transports can be divided into four industry groups: airlines, air freight, railroad and trucking. FedEx (FDX) and United Parcel Service (UPS) dominate air freight. Chart 10 shows the DJ Railroad Index ($DJUSRR) breaking below its March-April-May lows in early June and then immediately recovering. This looks like a bear trap. With a surge from the 760 area to the 845 area in two weeks, the index is fast approaching its resistance from 2012 highs and showing relative strength. Chart 11 shows the DJ US Trucking Index ($DJUSTK) breaking above the April trendline with a big move the last two weeks. The index, however, is already at resistance from the May highs. Users can see a list of stocks in these indices by using the Sector Summary at StockCharts.com. Simply click on the name to see the components of a particular industry group.
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Chart 10
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Chart 11
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Chart 12
EUROPEAN STOCKS MOVE LOWER AFTER STRONG OPEN... It was dj vu all over again in Europe this Monday. On the heels of a New Democracy victory in the Greek election, European stocks surged early Monday, but then gave it back with a decline the rest of the day. This is pretty much what happened last week after the announcement of the Spanish bailout. Market reaction to positive news has been muted the last two weeks. This inability to hold gains in the face of positive news is negative. At the very least, clear resistance levels have been established and these need to be broken before chartists can consider a trend reversal in the key EU stock indices. Chart 13 shows the DJ Spain Index ($ESDOW) surging to 250 in early trading and then reversing to close at 237, which is down over 3% on the day. The consolidation zone and last Mondays high mark resistance. At this point, a recovery back above 255 is needed to break the first resistance level and show noteworthy strength.
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Chart 13
Chart 14 shows the DJ Italy Stock Index ($ITDOW) surging to 108 in early trading on Monday and then reversing course to close below 104. Overall the index was down 2.78% on the day and remains in a downtrend. Last weeks high marks first resistance at 110.
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Chart 14
Chart 15 shows the DJ Germany Index ($DEDOW) surging above 233 in early trading and then closing below 231. In contrast to Spain and Italy, the German index still closed positive on the day. Nevertheless, I am marking resistance at 240 and a break above this level is needed to reverse the three month slide. Note that I am using country indices from Dow Jones because these are updated during the day. The benchmark country index is shown in the indicator window for reference.
