RUSSELL 2000 ETF SURGES OFF 200-DAY FOR SECOND TIME -- NASDAQ 100 ETF BREAKS ASCENDING TRIANGLE RESISTANCE -- FINANCE, CONSUMER DISC. AND SEMI ETFS CHALLENGE RESISTANCE -- 20+ YEAR T-BOND ETF BREAKS FLAG SUPPORT ON STRONG JOBS NUMBER
RUSSELL 2000 ETF SURGES OFF 200-DAY FOR SECOND TIME... Link for todays video. Stocks surged as the jobs number and ISM Services Index exceeded expectations. The Labor Department reported that the US economy added 163,000 jobs in July. This number was above the expectations for 100,000 and the highest in five months. The ISM Services index rose to 52.6%, which was above the expectation for 52%. After 4-5 month of economic reports that were below expectations, Wall Street is reacting positively to these two beats as the major indices moved sharply higher in early trading. Chart 1 shows the Russell 2000 ETF (IWM) getting a nice bounce today. I started off with IWM because relative weakness in small-caps remains a concern that needs to be remedied. There are at least three swings visible on this chart. There is a downswing in April-May, an upswing in June and a downswing in July. The current swing is down, but the ETF bounced off support from the late July low and 200-day moving average today. A follow through breakout at 80 would be bullish and argue for a test of the spring highs.
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Chart 1
Chart 2 shows the S&P 500 ETF surging above 138 with a strong move on Friday. SPY is clearly stronger than IWM because it extended its series of rising peaks into late July and early August. This is the definition of an uptrend. Resistance from the spring highs may be coming into play soon, but the trend is clearly up with first support at 134. PPO is also holding in positive territory to keep momentum bullish. Before moving on, note that the blue dotted lines show reactions to the prior six employment reports. Todays reaction is the first positive reaction since February 3rd.
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Chart 2
NASDAQ 100 ETF BREAKS ASCENDING TRIANGLE RESISTANCE... The Nasdaq 100 ETF (QQQ) was lagging SPY in July, but is starting to show some strength with a break above the July highs today. Chart 3 shows QQQ surging in June and then forming an ascending triangle in July. These are bullish continuation patterns and the breakout signals a continuation of the June advance. The spring highs mark the most obvious target in the 68 area. A strong breakout should hold. A sharp move back below broken resistance would call for a reassessment. Key support remains at 62. The PPO remains in positive territory and bullish.
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Chart 3
FINANCE, CONSUMER DISCRETIONARY AND SEMICONDUCTOR ETFS CHALLENGE RESISTANCE... Even though these ETFs represent different areas of the stock market, the Finance SPDR (XLF), the Consumer Discretionary SPDR (XLY) and the Market Vectors Semiconductor ETF (SMH) are critical to broad market performance. All three are challenging resistance levels and breakouts would be bullish. Chart 4 shows the Consumer Discretionary SPDR within an choppy consolidation since mid June. The ETF has bounced between 42.25 and 44.50 the last eight weeks with absolutely no direction. There is perhaps a slight uptrend present since the early June low, but it is ever so slight. XLY surged above 44 early Friday and a follow through breakout would be bullish.
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Chart 4
Chart 5 shows the Finance SPDR hitting resistance around 14.8 in July and challenging this level with a surge today. It is also possible that a small inverse head-and-shoulders pattern is taking shape with resistance at 14.80 (gray arrows). A breakout would signal a continuation of the June surge and target a move towards the spring highs. Key support remains at 14.20 for now.
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Chart 5
Chart 6 shows the ever resilient Market Vectors Semiconductor ETF challenging resistance from the June highs with a surge above 32.50 today. MACD reflects positive momentum as it moves into positive territory and above its early July high.
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Chart 6
20+ YEAR T-BOND ETF BREAKS FLAG SUPPORT ON STRONG JOBS NUMBER... Treasuries are getting hit after ISM Services and non-farm payrolls came in above expectations. Chart 7 shows the 20+ Year T-Bond ETF (TLT) plunging below 130 in late July, bouncing with a rising flag and breaking flag support with todays decline. This signals a continuation of the late July decline and targets a move to support in the 124 area. A decline in treasuries is needed for a sustainable advance in equities because these two are negatively correlated. Treasuries head up the risk-off trade, while equities head up this risk-on trade. It is one or the other in todays black and white world. Chart 8 shows the 10-year Treasury Yield ($TNX) moving above 1.55% (15.5) today. $TNX surged last week, consolidated with a fat flag and looks set to continue higher. Next resistance is in the 1.7% area.
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Chart 7
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Chart 8
US OIL FUND BOUNCES OFF SUPPORT... Oil is part of the risk-on trade and negatively correlated with treasuries. This means a rise in stocks and fall in treasuries is generally positive for oil. Chart 9 shows the US Oil Fund (USO) surging from late June to mid July and then falling back the last two weeks. USO held support at 32.50 in late July and again this week as it surged above 33 today. This keeps the six week uptrend alive and targets a move to next resistance in the 37 area. Broken support and the 61.80% retracement mark resistance here. Chart 10 shows Spot Light Crude ($WTIC) for reference. This is an end-of-day (EOD) chart that will be updated after the close.
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Chart 9
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Chart 10
AD VOLUME LINES TREND LOWER AND ESTABLISH RESISTANCE... On Monday I wrote that the NYSE AD Line and NYSE Net New Highs were strong and supported an uptrend in stocks. This remains the case, but I am still concerned with weakness in the AD Volume Lines. Chart 11 shows the NYSE AD Volume Line ($NYUD) reversing at broken support in early July and moving lower with a break below the June trend line. This break remains as the indicator hit resistance twice (red line) in recent weeks. A break above this resistance level is needed to turn this indicator bullish and argue for a challenge to the spring highs.
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Chart 11
Chart 12 shows the Nasdaq AD Volume Line ($NAUD) peaking in early July and working is way lower the last five weeks. The swing is down with last weeks high marking first resistance. A break above this level is needed to reverse the downtrend.
