SPY AND MDY STALL WITHIN UPTRENDS -- QQQ DRAWS SHORT-TERM BATTLE LINES -- APPLE FAILS TO HOLD SUPPORT BREAK -- XLF HOLDS GAINS AND CONTINUES TO LEAD -- JP MORGAN AND GOLDMAN HIT NEW HIGHS -- US BANCORP AND WELLS FARGO HOLD NEW YEARS GAPS
SPY AND MDY STALL WITHIN UPTRENDS... Link for todays video. Stocks are in an uptrend and upside momentum is slowing, but we have yet to see any signs of significant selling pressure and the uptrends are firmly in place. It is not uncommon for an advance to slow after a sharp move higher. Even though slowing momentum or sideways trading suggest that buying pressure is waning, it is not necessarily a victory for the bears. Chart 1 shows the S&P MidCap 400 SPDR (MDY) surging above 190 with a big two-day move. After moving from 182 to 190 in a short time, the ETF moved from 190 to 193 the next ten days. A 3 point advance in ten days has much less upside momentum than an 8 point advance in two days. Nevertheless, this 3 point advance shows more upside momentum than downside momentum. Chartists looking for a short-term signal can watch support at 191.50 for the first signs of weakness. A break below this level would suggest that a correction was unfolding and we could then see a move back towards the 186-187 area. Broken resistance, the lower line of the Raff Regression Channel and the 61.80% retracement combine to mark support here. Chart 2 shows the S&P 500 ETF (SPY) stalling with first support at 146.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
QQQ DRAWS SHORT-TERM BATTLE LINES... The Nasdaq 100 ETF (QQQ) has been weighed down by Apple over the last few weeks and remains well below its September high. The ETF, however, may be forming a bullish continuation pattern this year. Chart 3 shows QQQ surging above 66 with a big gap and then consolidating with a slightly contracting range. This looks like a pennant, which is a bullish continuation pattern. A break above pennant resistance would signal a continuation higher and target a move to the next resistance level, which is marked by the September highs. On the bearish side, QQQ is stalling near a key retracement (61.80%). A break below 66 would negate the pennant and be short-term bearish.
(click to view a live version of this chart)
Chart 3
APPLE FAILS TO HOLD SUPPORT BREAK... QQQ is still heavily dependent on Apple (AAPL) for direction because the stock accounts for around 15% of the ETF. Chart 4 shows AAPL breaking support at 500 on Tuesday and then moving right back above this support break on Wednesday. This could be a bear trap. Buying could also be occurring because Tom DeMark called for a bottom in Apple on Fast Money. DeMark is a market timer, not a technician and definitely not a trend follower. He specializes in exhaustion studies designed to pick tops and bottoms. According to DeMarks proprietary indicators, the selling pressure in Apple is getting exhausted and he expects a bounce. His indicators can only be found on Bloomberg terminals, Thomson One and CQG, which are institutional products. For mere trend followers, note that Apple needs to fill the gap and break above last weeks highs before we can consider this downtrend reversed. Also note that Apple reports after the close next Wednesday and risk of an outsized move, either way, is quite high.
(click to view a live version of this chart)
Chart 4
XLF HOLDS GAINS AND CONTINUES TO LEAD... Wells Fargo kicked off earnings season for banks last week and three more big banks followed with reports today. Goldman Sachs, JP Morgan and US Bancorp are big banks that also feature prominently in the Finance SPDR (XLF). In fact, these four stocks account for around 23% of the ETF. Chart 5 shows XLF moving sharply higher over the last six months. This move can be divided into two legs: one from June to September and the other from November to January. XLF is up over 10% since mid November and up some 30% since the early June low. Technical strength suggests that the underlying fundamentals are positive and these earnings reports should be good.
(click to view a live version of this chart)
Chart 5
Despite a clear uptrend and positive fundamentals, we could see profit taking after these earnings reports. In other words, it could develop into a classic buy-the-rumor and sell-the-news scenario. On the price chart, broken resistance in the 16-16.25 area turns the first area to watch for support should the ETF pull back. The June trend line will also reach this level in the next few weeks. The indicator window shows the price relative in an uptrend as XLK led the market from August to January. XLF remains one of the strongest sectors in the market right now.
JP MORGAN AND GOLDMAN HIT NEW HIGHS... JP Morgan (JPM) and Goldman Sachs (GS) represent the investment banks with trading activities and international operations. Chart 6 shows JPM in an uptrend since June as the stock rose by over 50% in eight months. There is no denying this uptrend, but the stock is getting overbought after its most recent surge from 39 to 46. Broken resistance and the June trend line combine to mark the first support zone around 48.
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
Chart 7 shows GS breaking above resistance in mid December and surging above 137.5 today. Nothing but uptrend here, but the stock is also getting overbought and I doubt Buffet is adding to his positions at this price. Broken resistance and the July trend line mark first support in the 125 area.
US BANCORP AND WELLS FARGO HOLD NEW YEARS GAPS... In contrast to the two banks above, US Bancorp (USB) and Wells Fargo (WFC) are domestically focused and their profits come from traditional banking activities. JPM and GS are clearly leading with 52-week highs, but USB and WFC have yet to reach these highs and show some relative weakness. Nevertheless, the latter two remain in uptrends and their gaps are holding. Chart 8 shows USB breaking resistance at 32.5 with a gap-surge and hitting some resistance from the 61.80% retracement in the 33.50 area. USB dipped below 33 after its earning report today, but recovered and moved back above this level around midday. Key support is set at 32. A move below this level would fill the gap and reverse the December-January upswing. Chart 9 shows WFC breaking out in late November and trending higher the last two months. The 2-Jan gap and November trend line mark the first support zone in the 34-34.5 area.
(click to view a live version of this chart)
Chart 8
