QQQ HITS ITS MOMENT-OF-TRUTH -- DOW TRANSPORTS BREAKS RISING WEDGE TRENDLINE -- DISSECTING THE INDUSTRY GROUPS IN THE INDUSTRIALS SECTOR -- TRUCKING INDEX BREAKS KEY SUPPORT LEVEL -- PORTUGAL VERSUS SPAIN PREVIEW

QQQ HITS ITS MOMENT-OF-TRUTH ... Link for todays video. Chart 1 shows the Nasdaq 100 ETF (QQQ) breaking below the lower trendline of a rising wedge. This break follows a failure near broken resistance and the 50-61.80% retracement zone. Rising wedges are typically bearish patterns that form as counter trend bounces in larger downtrends. This break signals a continuation of the April-May decline, but the ETF is stalling near the mid June lows. A break below this support level complete the reversal and target further weakness below the May low.

(click to view a live version of this chart)
Chart 1

Despite this bearish prognosis, the ETF is at moment-of-truth as it firms just above the mid June lows (61.50). Despite firmness, we have yet to see a bounce that would negate the wedge break. Look for a move above 63.50 to negate this break. The indicator window shows the Commodity Channel Index (CCI) hitting the zero line, which acts as a support in an uptrend (see early March). A break into negative territory would be bearish for momentum. Chart 2 shows the Nasdaq 100 ($NDX) for reference.

(click to view a live version of this chart)
Chart 2

DOW TRANSPORTS BREAKS RISING WEDGE TRENDLINE... Last week I reported that the Dow Transports ($TRAN) surged back into its consolidation zone. Railroad and Trucking stocks led this move. Even though surge looked impressive from a momentum standpoint, I was concerned because this consolidation zone could act as resistance. Chart 3 shows resistance indeed coming into play as the Dow Transports fell back towards 5000 this week and gave back much of the prior gain. As far as I am concerned, the bigger trend is down because the Average forged lower lows in May-June and remains below resistance from the 2012 highs. Moreover, notice that the June advance looks like a rising wedge and the Average clearly broke wedge support last week. This signals a continuation of the May decline and targets a move to the next support zone around 4500-4550.

(click to view a live version of this chart)
Chart 3

The indicator window shows the Percent Price Oscillator (PPO), which is a percentage version of MACD. MACD is the difference between the 12-period EMA and the 26-period EMA. PPO takes this one step further by dividing the difference by the 26-period EMA, which shows it as a percentage of the 26-period EMA. Also notice that I am removing the signal line by using zero instead of nine (12,26,0). This creates a nice histogram for momentum analysis. Negative dips in the PPO marked corrections in the Dow Transports (green arrows). Momentum clearly shifted from a positive bias to a negative bias with the May decline below -1%. The June advance pushed the PPO back above zero, but this push is not enough to reverse the May momentum shift. PPO needs to clear the March high to reverse the negative momentum bias. Chart 4 shows the Transport iShares (IYT) for reference.

(click to view a live version of this chart)
Chart 4

DISSECTING THE INDUSTRY GROUPS IN THE INDUSTRIALS SECTOR... Chartists can view the nine sectors and the respective industry groups within these nine sectors on the Complete Industry Listing For S&P Sectors page. Chartists can set the performance timeframe as the top of this page to see the percentage change and sort by clicking the headings (Symbol, Name, Close, Change...). The screenshot below focuses on the industry groups within the industrials sector and the one month price change. Within the Dow Transports, railroads, airlines and delivery services are at the top of the table and show gains over the past month. Trucking, however, is down over 3% and showing relative weakness. Users can click on the industry group name to see a list of components and compare performance. The second image shows these components with more than half showing losses over the past month. 9 of the 22 components are down over 5%.

(click to view a live version of this chart)
Chart 5

(click to view a live version of this chart)
Chart 6

TRUCKING INDEX BREAKS KEY SUPPORT LEVEL... Chart 7 shows the DJ US Trucking Index ($DJUSTK) forming a lower high and then breaking support with the April-May decline. First, notice that the index plunged in 2011 and broke some major support levels. Second, the ensuing rebound fell well short of the prior high and a lower high is taking shape. With the recent support break, it looks like a new down leg is unfolding and we could see a move below the 2011 low. This is what downtrends are all about: lower highs and lower lows. The trucking industry is an important economic barometer because it moves goods at the wholesale and retail levels. A slowdown in this group would suggest fewer goods on the roads and this would suggest a slowdown in retail spending. This, of course, would be negative for the overall economy and the stock market.

(click to view a live version of this chart)
Chart 7

Before moving on, note that RSI moved from bull mode to bear mode in 2011. In addition to measuring momentum, RSI can be used to define uptrends and downtrends. According to research by Andrew Cardwell, RSI ranges from 40 to 80 in an uptrend and from 20 to 60 in a downtrend. RSI was in bull mode throughout 2010 and into 2011. The indicator then broke below 40 and became oversold in August 2011. Despite a recovery the last ten months, the indicator did not make it back above 60 and moved below 50 in late April. The 50-60 zone now acts as resistance for RSI. It would take a break above 60 to signal a momentum reversal.

PORTUGAL VERSUS SPAIN PREVIEW... Tonight is the big semi-final match between Iberian neighbors Spain and Portugal. Spain won the World Cup two years ago and the EU Championship four years ago. However, Portugal beat Spain in November 2010 and has one of the best footballers in the world, Christian Ronaldo. Never mind the hype and the news, what do their equity indices say about the game? Chart 8 shows the DJ Spain Index ($ESDOW) in a clear downtrend. There was a bounce in June, but the index is hitting stiff resistance around 255. A breakout here is needed to extend the June rally. The indicator window shows Spanish stocks relative to Portuguese stocks with a ratio chart ($ESDOW:$PTDOW). Spain has a clear edge here as the Price Relative broke its February trendline and moved higher.

(click to view a live version of this chart)
Chart 8

(click to view a live version of this chart)
Chart 9

Chart 9 shows the DJ Portugal Index ($PTDOW) also in a downtrend and near 52-week lows. The June bounce was much weaker as the index failed to exceed 120. This is the reason Spanish stocks are outperforming. Given the weakness of the June bounce and the relative strength in Spanish equities, my tongue-in-cheek expectation is for Spain to win tonights semi-final match. Given the same logic, I would also expect Germany to beat Italy.