TREASURIES DROP AND YIELDS SURGE AFTER EMPLOYMENT DATA -- IWM AND MDY BREAK CONSOLIDATION RESISTANCE -- METALS & MINING SPDR BATTLES BREAKOUT -- COPPER ETF BREAKS FLAG RESISTANCE -- DOLLAR PLUNGES AFTER JOBS REPORT
TREASURIES DROP AND YIELDS SURGE AFTER EMPLOYMENT DATA... Link for todays video. The Labor Department reported that the US economy added 114,000 non-farm payrolls (jobs) in September. Also note that non-farm payrolls for July and August were both revised higher, by around 40,000 jobs each. The unemployment rate fell to 7.8%, which is the lowest since January 2009. Treasury bonds, which focus on the economy and jobs, came under intense selling pressure with this news. Remember, the news is not what is important here. Instead, it is the markets reaction to the news. This news is bearish for treasuries and the reaction is negative. The combination is bearish for treasuries. Chart 1 shows the 20+ Year T-Bond ETF (TLT) hitting resistance around 125 as it formed a lower peak just below the early September peak. Overall, notice that TLT peaked in late July and sports a clear downtrend the last 2 1/2 months. The lower trend line of the falling channel marks the next target.
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Chart 1
The indicator window shows the Correlation Coefficient for TLT and the S&P 500 ETF (SPY). This indicator spent most of the last 12 months in negative territory. In fact, it was below -.50 at least half the time. This negative correlation means stocks and treasuries move in opposite directions. Weakness in treasuries points to strength in the economy and this is positive for stocks.
Treasury bonds and treasury yields move in opposite directions. The yield rises when treasury bonds fall, which is happening today. Chart 2 shows the 10-year Treasury Yield ($TNX) forming a higher low at 16 (1.6% yield) and surging above 17 today. This reinforces support at 16 and the trend since July is up for yields.
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Chart 2
IWM AND MDY BREAK CONSOLIDATION RESISTANCE... With treasuries and the Dollar lower, stocks were broadly higher in early trading on Friday. This does not affect the medium-term trends, which were already up. The surge over the last 2-3 days does, however, put the short-term trends back in bull mode. Chart 3 shows the S&P MidCap 400 SPDR (MDY) stalling on Tuesday-Wednesday and then breaking above consolidation resistance the last two days. This is a short-term breakout within a bigger uptrend. MDY bottomed in early June and has been in a medium-term uptrend the last four months.
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Chart 3
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Chart 4
Chart 4 shows the Russell 2000 ETF (IWM) breaking short-term resistance with todays surge. The breakout is short-term bullish and chartists can now mark support at 83. Even though these breakouts are short-term bullish, MDY and IWM continue to underperform SPY and show relative weakness. The indicator windows shows the price relatives (IWM:SPY ratio) peaking in mid September and moving lower the last three weeks. Small-caps and mid-caps continue to underperforming large-caps.
METALS & MINING SPDR BATTLES BREAKOUT... The Metals & Mining SPDR (XME) is battling its resistance breakout with some serious gusto. No, gusto is not a new technical term or indicator. Chart 5 shows XME breaking resistance with a big surge in early September and broken resistance turning into support around 43. This is a classic tenet of technical analysis: broken resistance turns support. A spinning top formed last week and the ETF bounced back above 44 today. Mondays high marks short-term resistance and a close above this level would be bullish. This would reinforce support in the 43 area and increase the chances of a continuation higher. The indicator window shows the price relative trying to form another higher low and continue its rise. A rising XME:SPY ratio means XME is outperforming the broader market.
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Chart 5
COPPER ETF BREAKS FLAG RESISTANCE... Clues on the Metals & Mining SPDR (XME) and the Copper Miners ETF (COPX) might come from the Base Metals ETF (DBB) and the Copper ETF (JJC). Chart 6 shows DBB surging over 15% from mid August to mid September. The ETF broke three peaks in the process and challenged its early May high. After becoming overbought, DBB corrected with a falling flag in late September. The ETF broke falling flag resistance last week, but did not follow through this week. This breakout is holding, but we need to see some follow through soon. A break back below 19.6 would be negative and a break below the flag low would be outright bearish.
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Chart 6
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Chart 7
Copper is faring better than DBB. Chart 7 shows the Copper ETF (JJC) surging above resistance in early September and forming a falling flag in late September. The ETF broke flag resistance on Monday and this breakout is largely holding. Even so, lack of follow through is a concern and a break back below 47.50 would be negative.
DOLLAR PLUNGES AFTER JOBS REPORT... The Dollar moved sharply lower and the Euro moved sharply higher as the worlds appetite for risk increased on Friday. The jobs report is positive for the US economy and this in turn is positive for the global economy. Chart 8 shows the US Dollar Fund (UUP) breaking rising flag support with a sharp decline the last two days. This decline reinforces resistance in the 21.90 area. Combined with the July trend line, I will now mark key resistance at 22 for the greenback. The indicator window shows the Commodity Channel Index (CCI) moving back below zero this week. This move also establishes a resistance level for this momentum oscillator. A move above 50 would break CCI resistance and turn momentum bullish again. Chart 9 shows the Euro Currency Trust (FXE) with key support at 127.
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Chart 8
