QQQ BREAKS ABOVE UPPER BOLLINGER BAND - APPLE BREAKS TRIANGLE RESISTANCE AS MICROSOFT FORMS FALLING FLAG -- SEMICONDUCTOR ETF EXCEEDS 2012 HIGH -- TAIWAN, TEXAS AND ANALOG LEAD SEMIS HIGHER -- SECTOR PERFORMANCE TURNS A BIT DEFENSIVE
QQQ BREAKS ABOVE UPPER BOLLINGER BAND... Link for todays video. The Nasdaq 100 ETF (QQQ) is making a move on Friday with an early surge above the upper Bollinger Band. Chart 1 shows QQQ trading above its mid January high and exceeding consolidation resistance. This breakout, should it hold, follows a Bollinger Band squeeze and signals a continuation of the current uptrend, which has been in place since the mid November surge. This move reinforces support in the 66-66.5 area. The indicator window shows the Stochastic Oscillator bouncing around 50 for the last two weeks and breaking above 70 today. The Stochastic Oscillator declined to 50, which is the centerline, because momentum flattened the last few weeks. This breakout signals an upturn in momentum and confirms what we are seeing on the chart.
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Chart 1
APPLE BREAKS TRIANGLE RESISTANCE AS MICROSOFT FORMS FALLING FLAG... As the QQQ chart showed, Apple (APPL) is clearly the biggest holding (14%) in the ETF and Microsoft (MSFT) is the second. Traders in QQQ must pay attention to Apple because of its influence. Chart 2 shows the stock gapping down in mid January and then firming the last few weeks. A small triangle formed and this looked like a pennant, which is a continuation pattern. Instead of breaking down to signal a continuation lower, the stock broke out to the upside and started a short-term uptrend. The bigger trend, however, remains down with first resistance in the 500-510 area. Broken support and the September trend line mark support here. Chart 3 shows Microsoft breaking above resistance in late January and then pulling back with a falling flag. These are bullish continuation patterns that require a breakout for confirmation.
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Chart 2
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Chart 3
SEMICONDUCTOR ETF EXCEEDS 2012 HIGH... Strength in the semiconductor stocks is also helping out the technology sector today. Chart 4 shows the Market Vectors Semiconductor ETF (SMH) moving above 35 and recording a 52-week high on Friday. The 35 level marked resistance way back in March 2012. Like the rest of the market, SMH can be considered both overbought and in an uptrend. The trend line extending up from the mid November low mark first support in the 34 area. The indicator window shows the price relative moving higher the last few months as SMH outperforms SPY.
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Chart 4
TAIWAN, TEXAS AND ANALOG LEAD SEMIS HIGHER... It is interesting to note that SMH is hitting this 52-week high without much help from its biggest component (Intel). Chart 5 shows Taiwan Semiconductor (TSM) working its way higher since September. Broken resistance turns into key support in the 17.50 area. Chart 6 shows Texas Instruments (TXN) in a strong uptrend with support in the 32.5-33 area. Chart 7 shows Analog Devices (ADI) surging over 2% and recording a 52-week high.
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Chart 5
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Chart 6
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Chart 7
OFFENSE SECTORS WEAKEN AS MARKET TURNS A BIT DEFENSIVE... Even though techs are leading today, the stock market advance slowed over the last 2-3 weeks and this slowing is reflected in recent sector rotations. PerfChart 8 shows relative performance for the nine S&P Sector SPDRs. Relative performance is calculated by subtracting the gain/loss in the S&P 500 from the gain/loss in the sector. Sectors with positive relative performance are outperforming the S&P 500. Sectors with negative relative performance are underperforming. First, notice that the Consumer Discretionary SPDR (blue), Technology SPDR (green) and Industrials SPDR (magenta) are underperforming over the last 12 days. Second, notice that the Consumer Staples SPDR (teal), Healthcare SPDR (purple) and Utilities SPDR (orange) are outperforming. This indicates that the market has turned more defensive and could be preparing for a corrective period.
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Chart 8
JUNK BONDS WEAKEN AS CORRELATION WITH STOCK MARKET TURNS NEGATIVE... The High-Yield Bond SPDR (JNK) and the iShares High-Yield Bond ETF (HYG) remain in long-term uptrends still, but recent weakness shows a shift out of these riskier assets. For the most part, JNK and HYG have been positively correlated with the S&P 500 ETF (SPY) since this big bull run began in March 2009. This means they tend to rise and fall along with the stock market. This relationship makes sense because a rising stock market is positive for the economy and a positive economy is positive for junk bond issuers. Improving business conditions make it easier for junk bond issuers to make their payments. There are signs that this correlation is breaking down over the last two weeks. I am concerned with this breakdown because it is counter to the bull market norm of the last four years. The breakdown could, however, reflect rising Treasury yields and a general move out of fixed income because of interest rate risk.
Chart 9 shows the Correlation Coefficient for the iShares High-Yield Bond ETF moving to its lowest level in over three years. The main chart window shows HYG within a large rising channel and long-term uptrend. The ETF moved above the upper trend line this year, but fell back below with the decline over the last two weeks. HYG is clearly overbought and ripe for a rest. The September-November consolidation marks a support zone in the 90 area. Chart 10 shows JNK for reference. On a side note, optionmonster.com is reporting an order for 9,000 March 92 puts on HYG, which means someone is making a big bet on a decline. Could it be Jim Rogers?!
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Chart 9
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Chart 10
PERCENT OF STOCKS ABOVE 200-DAY MOVING AVERAGE HITS EXTREME... The S&P 500 %Above 200-day SMA ($SPXA200R) is a breadth indicator that measure the degree of participation. As chart 11 shows, some 87.4% of S&P 500 stocks are currently above their 200-day moving average. In general, a reading above 80% denotes overbought conditions. However, the indicator is both overbought and still bullish at this point. Notice how the percentage is hovering around the 85-88 area and has yet to turn down. The S&P 500 is in good shape as long as this many stocks remain above their 200-day moving average. The pink line shows the 23-day moving average of the indicator. A move below this moving average would signal the first downturn in the indicator. While this would be a mild negative, it might not be enough to foreshadow an extended correction or decent pullback. Medium-term, my eyes are on the direction of this 23-day moving average, which covers one month. Notice that the S&P 500 did not really weaken until this moving average turned down (yellow areas). Chart 12 shows the Nasdaq 100 %Above 200-day SMA ($NDXA200R) for reference.
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Chart 11
