SPY EXTENDS UPTREND AND ESTABLISHES KEY SUPPORT -- IWM FAILS TO CONFIRM HIGHER HIGH IN SPY -- XLF AND XLY BATTLE RESISTANCE -- QQQ AND SMH CHALLENGE JULY HIGHS -- NYSE AD LINE AND NET NEW HIGHS REMAIN STRONG
SPY EXTENDS UPTREND AND ESTABLISHES KEY SUPPORT... Link for todays video. It is likely to be a big event-driven week for the market. In addition to over a dozen economic reports, the Fed makes its policy statement on Tuesday and the European Central Bank (ECB) meets on Thursday. The week ends with Fridays employment report. Even though the Dow Industrials SPDR and the S&P 500 ETF moved above their July highs, the S&P MidCap 400 SPDR and Russell 2000 ETF have yet to confirm with higher highs of their own. In addition, the Nasdaq 100 ETF and some key sector/industry group ETFs are meeting resistance. DIA and SPY cannot go it alone. Confirming breakouts are needed to broaden the rally and pave the way for further gains.
Chart 1 shows the S&P 500 ETF (SPY) with the blue lines marking the last five employment reports. Notice that SPY moved lower on the day of each report. The May report triggered a sharp decline that culminated with a gap down on the June report. SPY gapped down after the July report, but recovered and moved above its mid July highs last week. Overall, a rising wedge is taking shape and the trend is clearly up as long as this wedge rises. The July lows mark support at 132.50 and a break below this level would reverse the two month uptrend. The indicator window shows the Percent Price Oscillator (PPO) turning positive in mid June and holding positive the last six weeks. Momentum is bullish as long as the PPO is above zero. Chart 2 shows the Dow Industrials SPDR (DIA) with similar characteristics.
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Chart 1
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Chart 2
IWM FAILS TO CONFIRM HIGHER HIGH IN SPY... Even though DIA and SPY surge to new highs for the current advance, the Russell 2000 ETF (IWM) and the S&P MidCap 400 SPDR (MDY) fell short. This short-fall amounts to a non-confirmation. These small-cap and mid-cap ETFs have not confirmed the new highs in the large-cap ETFs. A non-confirmation tells us two things. First, small-caps and mid-caps are underperforming large-caps. Second, these small-cap and mid-cap ETFs may have already started downtrends. Chart XX shows the Russell 2000 ETF breaking support at 77.5 to start a downtrend and then bouncing off its 200-day moving average. The ETF remains below its mid July high and needs to break this level to put it on par with DIA and SPY. The indicator window shows the price relative hitting a new low for 2012 last week. IWM is seriously underperforming SPY this year.
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Chart 3
Chart 4 shows the S&P MidCap 400 SPDR surging to resistance in the 172-174 area last week. A break above 174 is needed to put MDY on par with SPY and DIA. The indicator window shows the price relative hitting a new low for 2012 last week. MDY is underperforming SPY this year.
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Chart 4
XLF AND XLY BATTLE RESISTANCE... The Consumer Discretionary SPDR (XLY) and the Finance SPDR (XLF) are also trading near key resistance levels. Failure and a sharp move lower would be bearish, but breakouts would be bullish and argue for a challenge to the spring highs. Chart 5 shows XLF hitting resistance in the 14.8 area twice this month and challenging this area now. The finance sector remains a concern because it continues to underperform SPY. The indicator window shows the price relative moving below support in mid July.
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Chart 5
Chart 6 shows XLY bouncing within a trading range since mid June. Support resides in the 42.25 area and resistance is set around 44.40. A break above the June-July highs would end this trading range and call for a challenge to the early May high. Relative weakness in XLY is also a concern here because the price relative (XLY:SPY) ratio has been trending lower since early May.
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Chart 6
QQQ AND SMH CHALLENGE JULY HIGHS... Within the technology group, the Nasdaq 100 ETF (QQQ) and the Market Vectors Semiconductor ETF (SMH) are trading near resistance from the July highs. Breakouts are needed to eliminate these resistance levels and pave the way for further gains. Chart 7 shows QQQ basically stalling since mid June. The bounce since early June retraced around 61.80% of the prior decline and the ETF is meeting considerable resistance just above 65. A breakout here would open the door to the April highs. Failure and a support break at 62 would signal a continuation of the April-May decline. Chart 8 shows SMH hitting resistance from broken support and the June highs. A break above this level is needed to reverse the downtrend that started with this support break.
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Chart 7
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Chart 8
NYSE AD LINE AND NET NEW HIGHS REMAIN STRONG... Even though Nasdaq breadth is mediocre at best, NYSE breadth remains strong and continues to carry the bulls. The NYSE AD Line remains strong as it hovers near a 52-week high. The AD Line is a cumulative measure of net advances (advancing issues less declining issues). An advance counts as +1, while a decline counts as -1. The indicator moves higher when advancers outnumber decliners, and lower when decliners outnumber advancers. This cumulative indicator can be compared to the underlying index to measure participation. Chart 9 shows the NYSE AD Line ($NYAD) breaking support in May, but firming and breaking resistance in mid June. With the June surge, this indicator broke its spring highs and recorded a 52-week high. This new high shows strength within the NYSE, which is positive for the broader market. After breaking these highs, the indicator consolidated and established support with the July lows. The AD Line remains firmly bullish as long as these lows hold.
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Chart 9
Chart 10 shows NYSE Net New Highs ($NYHL) in the first indicator window and the cumulative line in the main window. Net New Highs exceeded 250 several times since late June and remain positive. The bulls have a clear edge as long as new highs outnumber new lows. The Cumulative Net New Highs line turned up in early June and moved above its signal line, which is the 10-day EMA. This indicator also remains bullish as long as it rises.
