SETTING MOMENTUM SUPPORT FOR SPY AND QQQ -- S&P 500 STOCKS ABOVE 200-DAY CONTINUES TO IMPROVE -- BULLISH PERCENT INDEX STRUGGLES FOR CONSUMER DISCRETIONARY SECTOR -- FINANCE AND TECH BPIS PICK UP THE SLACK -- OIL MAKES ANOTHER GO AT RESISTANCE
SETTING MOMENTUM SUPPORT FOR SPY AND QQQ... Link for todays video. Chart 1 shows the S&P 500 ETF (SPY) with the True Strength Index generating four oscillator signals over the past year. The True Strength Index is a momentum oscillator that measures the momentum of double-smoothed price changes. You can read more on this indicator in our ChartSchool. As with most momentum oscillators, there are several ways to generate signals. Chartists can add a signal line and look for signal line crossovers. This method, however, will generate lots of signals and whipsaws. Chartists can also look for centerline crossovers. Even though this method will reduce whipsaws, the signals will be later and the reward-to-risk ratio will be skewed. Chartists can also apply basic chart analysis to generate signals. For example, chartists could look for support breaks, resistance breakouts or trend line breaks. Support and resistance breaks can be used when there are clear peaks and troughs upon which to base support and resistance. If clear support and resistance levels are not present, chartists can use trend lines. The TSI produced two support breaks, a resistance break and a trend line break over the past year. These signals were further confirmed by support or resistance breaks on the price chart.
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Chart 1
Support, resistance and clear trend lines are not always possible to draw on oscillators. In such situations chartists must look for another method to derive a signal. The TSI is currently rising and above the zero line (centerline). A clear support level has yet to form and it is not possible to a draw rising trend line. With the TSI relatively close the zero line, I would base the next signal on a cross into negative territory. In other words, this indicator is considered bullish until it crosses below the zero line. On the price chart, I am setting a support zone around 140. A break below the early December low would reverse the five week uptrend in SPY. Chart 2 shows the Nasdaq 100 ETF (QQQ) with the TSI hovering just above the zero line.
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Chart 2
S&P 500 STOCKS ABOVE 200-DAY CONTINUES TO IMPROVE... The S&P 500 %Above 200-day SMA ($SPXA200R) and the Nasdaq 100 %Above 200-day SMA ($NDXA200R) are breadth indicators designed to measure the degree of participation. Looking at prior levels, chartists can determine if fewer stocks are participating in an advance, which could undermine the advance. Chartists can also apply chart analysis to define the trend for these indicators. Chart 3 shows the S&P 500 %Above 200-day SMA bouncing off the 45-50% zone in early June and again in mid November. The indicator moved above 70%, but remains below its September high. Even though fewer stocks are making it above their 200-day moving average, the indicator is still in an uptrend since mid November. Marking support at this point is a challenge because the indicator has yet to form definitive troughs, as it did in March-April and September-October. Break downs in early May and late October foreshadowed weakness in the S&P 500. I would mark support at 65 for the current upswing. The bulls have an edge as long as more than 65% of stocks in the S&P 500 are above their 200-day SMAs. Chart 4 shows the Nasdaq 100 %Above 200-day SMA with a support zone around the 50% level.
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Chart 3
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Chart 4
BULLISH PERCENT INDEX STRUGGLES FOR CONSUMER DISCRETIONARY SECTOR ... The Bullish Percent Index is another breadth indicator that chartists can use for sector analysis. StockCharts.com calculates the Bullish Percent Index for the nine S&P sectors and several other indices. The Bullish Percent Index measures the percentage of stocks on a P&F buy signal (double top breakout). The remaining stocks are on a P&F sell signals (double bottom breakdown). This is a black or white indicator because a stock is either on a P&F buy signal or a P&F sell signal. There is no ambiguity.
Chart 5 shows the Consumer Discretionary BPI ($BPDISC) peaking in September and moving lower the last few months. The indicator surged at the end of November, but did not break the trend line extending up from mid September. This trend line and the late November high mark resistance at 65%. A breakout is needed to turn this Bullish Percent Index bullish again. Note that the BPI is lagging because XLY is trading near its September highs. The BPI was above 75% in September and is currently below 65%. Fewer stocks within the sector are participating in this advance and this is a concern. Chart 6 shows the Consumer Discretionary SPDR (XLY) with a dark cloud forming last week as it failed to hold its breakout. Key support is set at 46.
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Chart 5
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Chart 6
FINANCE AND TECH BPIS PICK UP THE SLACK... Even though the Consumer Discretionary BPI is dragging its feet, the Technology BPI ($BPINFO), Finance BPI ($BPFINA) and the Industrials BPI ($BPINDY) surged to pick up the slack. Chart 7 shows the Finance BPI surging to the September trend line with a move above 74%. The cup is more than half full with 74% of stocks in this sector on P&F buy signals. Chart 8 shows the Technology BPI with a big surge the last five weeks. The indicator broke the September trend line and exceeded the early November high at the beginning of December and never looked back. This is clearly a positive development for the technology sector. Chart 9 shows the Industrials BPI recovering after a support break and surging above 75% last week.
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Chart 7
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Chart 8
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Chart 9
OIL MAKES ANOTHER GO AT RESISTANCE... The US Oil Fund (USO) is challenging resistance at 33 with a sharp move higher on Wednesday. Chart 10 shows USO falling in September-October and then consolidating the last two months. USO established a clear trading range with support at 31 and resistance at 33. The ETF attempted to break resistance at 33 in early December, but failed and closed weak. A close above 33 today would argue for a breakout and could signal that start of a new uptrend. The indicator window shows RSI trying to break its resistance zone (50-60). Chart 11 shows the Brent Crude ETF (BNO) breaking above the wedge trend line with a move through 81 today.
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Chart 10
