SPY STALLS WITH A NARROW RANGE DAY -- QQQ AND XLK TURN VOLATILE, BUT HOLD THEIR GAPS -- HOUSING STARTS AND BUILDING PERMITS EXTEND LONG-TERM UPTRENDS -- HOME CONSTRUCTION ISHARES LEADS AGAIN WITH A NEW HIGH
SPY STALLS WITH A NARROW RANGE DAY... Link for todays video. The Fed reiterated its intentions to purchase some $85 billion per month of Treasury and mortgage bonds and the market greeted this news with a yawn. Stocks were already up heading into the announcement and traded flat afterwards. Chart 1 shows the S&P 500 ETF (SPY) stalling near its highs in the 156 area. The ETF may be short-term, and even medium-term, overbought, but the trend here is clearly up. Broken resistance and the mid November trend line combine to mark first support in the 152 area. The February lows mark key support at 148. The indicator window shows RSI remaining in bull mode as it fluctuates between 40 and 80. A break below 40 is needed to turn RSI bearish.
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Chart 1
Now that we know the medium-term trend, I would like to point out todays narrow range day. Narrow range trading systems were pioneered by Tony Crabel. In particular, Crabel developed the narrow range 7 strategy (NR7), which looks for reversals when the current range is the narrowest of the last seven days. It is a very short-term system designed to buy on an upside range breakout and sell on a downside range break. Todays SPY range is the narrowest since March 7th. This narrow range shows indecision that could set the stage for another move. A break above 155.95 would be bullish for the NR7 system, while a break below 155.26 would be bearish. You can read ore about this trading strategy in our ChartSchool
QQQ AND XLK TURN VOLATILE, BUT HOLD THEIR GAPS... The Nasdaq 100 ETF (QQQ) and the Technology SPDR (XLK) turned a little volatile on Monday and Tuesday, but held their early March gaps and stayed within their consolidation. Thursday will provide a test because Oracle is trading lower after hours because it missed on revenues. Chart 2 shows QQQ gapping up and trading flat the last twelve days. The ETF dipped below 68 on Monday and Tuesday, but managed to recover and close above this level. Note that QQQ has closed between 68.81 and 68.23 the last twelve days. Hows that for a narrow range. The first close outside of this range could provide the next directional clue. Stepping back a little further, traders can watch the gap zone and support at 67.50. Chart 3 shows XLK with similar characteristics.
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Chart 2
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Chart 3
HOUSING STARTS AND BUILDING PERMITS EXTEND LONG-TERM UPTRENDS... The strong just get stronger as money continues to flow into housing stocks. Moreover, the long-term trends in housing starts and building permits support the uptrend in housing stocks. Chart 4 show monthly housing starts over the last ten years. Starts bottomed in the 500,000 area from early 2009 until early 2011. The indicator bottomed in early 2011 and moved steadily higher the last three years. This long-term uptrend is positive for the overall economy, and stock market. Starts are still nowhere near the 2006 peak, but are at levels not seen since 2008. Chart 5 shows building permits with similar characteristics. Note that these user-defined indices were created with a StockCharts.com Pro account.
Chart 4
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Chart 5
HOME CONSTRUCTION ISHARES LEADS AGAIN WITH A NEW HIGH... The Home Construction iShares (ITB) got hit hard in late February, but quickly rebounded and surged right back to resistance. After a flag consolidation in the 23.50 area, the ETF broke resistance with another surge the last three days. Chart 6 shows ITB hitting a new 52-week high as it broke above flag resistance. The flag lows now mark first support. In addition, the resistance zone around 23.5-24 turns into a support zone. The indicator window shows ITB returning to relative strength as the price relative breaks above the trend line extending down from late January. Chart 7 shows Toll Brothers (TOL) surging off support with good volume. Notice that broken resistance turned into support in the 33-33.5 area.
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Chart 6
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Chart 7
20+ YEAR T-BOND ETF TURNS BACK AT TREND LINE RESISTANCE... The markets were thrown for a loop on Monday morning with the events in Cyprus. US stocks opened lower, treasuries surged and the Dollar advanced. All of the sudden, the worst-case scenario was on the table and the Euro skeptics were heard loud and clear. Despite a big move in treasuries on Monday and Tuesday, the bigger down trend was never threatened. Chart 8 shows the 20+ Year T-Bond ETF (TLT) surging on Monday-Tuesday and then hitting resistance at 118. Wednesdays pullback further validates the trend line extending down from early December. Medium-term, this chart sports a series of lower peaks and lower troughs since December. The bigger trend is still down with the late February high marking key resistance.
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Chart 8
EURO TOP 100 INDEX REMAINS STRONG ... When it comes to European issues and their affect on the rest of the world, chartists would often be better served by looking at a key chart and ignoring media reports. Chart 9 shows the European Top 100 Index ($EUR), which is the S&P 100 of Europe. Germany, the UK, France, Spain, Italy, The Netherlands and several other countries are represented. This index represents core-Europe. Europe as a whole is going to be fine as long as the core is strong. The index broke flag/wedge resistance with a surge in early March and is holding this breakout. There is nothing weak on this chart. The index may be short-term overbought, but it is certainly not weak. The February lows mark key support and European concerns should remain on the back burner as long as this support level holds.
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Chart 9
OILS TURNS BACK AT BROKEN SUPPORT... Spot Light Crude ($WTIC) got a nice bounce in early March, but hit resistance near a key retracement and broken support as selling pressure hit. Chart 10 shows oil breaking down in February with a sharp decline below 94. After becoming oversold and finding support near broken resistance, $WTIC bounced with a pretty sharp move back to the 94 area. Notice that this advance formed a rising flag and retraced 50-61.80% of the prior decline. Also note that resistance is expected near broken support. The failure in the 94-95 area reinforces the February breakdown. This is the level to beat if the bulls want to reverse the downtrend. A break above 95 would be quite bullish. Barring such a move, the next support zone is around 90. Below that, oil has support in the mid 80s from its October-December lows. The indicator window shows RSI hitting resistance in the 50-60 zone and turning down the last two days. Chart 11 shows the US Oil Fund (USO) hitting resistance at 33.75 and testing support at 33.
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Chart 10
