QQQ HITS RESISTANCE, BUT HOLDS THE WEDGE -- APPLE BREAKS 50-DAY AS AMZN TESTS SUPPORT -- FDN, IGN AND SMH NEAR KEY SUPPORT LEVELS -- EURO FALLS AFTER CYPRUS DEAL -- ITALIAN, FRENCH AND SPANISH STOCKS GIVE UP EARLY GAINS
QQQ HITS RESISTANCE AT MARCH HIGH, BUT HOLDS THE WEDGE... Link for todays video. The Nasdaq 100 ETF (QQQ) may be forming a rising wedge, but that wedge is clearly rising and the medium-term trend is up as long as it rises. There are two sides to every trade, a buyer and a seller. The buyer sees things in a bullish light, while the seller sees things with bear-tinted glasses. Yes, we all have biases. The eternal challenge is to see what is actually on the chart. Chart 1 shows QQQ within an uptrend since mid March. The advance is certainly choppy with a surge in late November, surge in early January and surge in early March. The medium-term trend is up because QQQ formed a series of rising peaks and rising troughs. It is as simple as that. Moreover, notice that key gaps continue to hold (yellow areas). Most recently, QQQ gapped above 67.5 and held this gap the last three weeks. The bulls get the benefit of the doubt as long as this gap holds.
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Chart 1
What might the bears see on this chart? There is a rising wedge taking shape since mid November (or even late December). The slope of the upper trend line is less steep than the lower trend line and this reflects lackluster buying pressure. While rising wedges are often considered bearish patterns, I would point out two things on this chart. First, the wedge is quite large (a good four months). Second, the trend is clearly up as long as prices remain within the wedge. At the very least, a break below the lower trend line is needed to show enough selling pressure to suggest a trend reversal. Yes, this advance is rather boring, but it is still an advance. Chart 2 shows the Technology SPDR (XLK) with similar characteristics. Notice that XLK has three non-Nasdaq stocks (IBM, T, VZ)
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Chart 2
APPLE BREAKS 50-DAY AS AMZN TESTS SUPPORT... As shown above, the top ten stocks account for around 50% of QQQ. This means the other 90 stocks account for the remaining 50%. I think we know where to focus. Using CandleGlance chart, chartists can easily get a handle on the inner workings of an ETF. Chart 3 shows six-month CandleGlance charts for the top ten stocks. On balance, the majority are in uptrends and there is clearly more strength than weakness. Oracle (ORCL) broke its February lows with a plunge last week and AMZN is testing the February lows. Apple is in a downtrend since October, but is showing signs of life with a break above the 50-day line. Overall, it looks like Amgen (AMGN), Cisco (CSCO), Comcast (CMCSA), Google (GOOG), Microsoft (MSFT) and QualCom (QCOM) are in clear uptrends. Six uptrends out of ten confirms that the cup is half full for the moment.
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Chart 3
FDN, IGN AND SMH TESTS MEDIUM-TERM SUPPORT LEVELS... Chartists can also breakdown a sector into industry group ETFs. The technology sector can be broken down into the Nasdaq Biotech iShares (IBB), the FirstTrust Internet ETF (FDN), the Networking iShares (IGN) and the Market Vectors Semiconductor ETF (SMH). IBB is strong, but the other three are close to key support levels. Breakdowns in two of these three would be bearish for the technology sector. Chart 4 shows IBB breaking out in early March and then consolidating in the 155 area. Chart 5 shows the Internet ETF with key support in the 41.5-42 area. FDN is underperforming SPY and a support break here would be medium-term bearish. Chart 6 shows the Networking iShares failing to hold the early March surge and testing support near 29. Chart 7 shows Semiconductor ETF falling sharply in mid March and testing support in the 34.50 area.
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Chart 4
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Chart 5
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Chart 6
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Chart 7
EURO FALLS AFTER CYPRUS DEAL... Here is an interesting twist. A last minute deal averted a big crisis over Cyprus, but the Euro fell on the news. There are three possibilities. The deal was already priced in on Friday, the market does not like the deal or the market is turning its attention elsewhere. My guess is the latter two. Chart 8 shows the Euro Currency Trust (FXE) falling below 128 with a sharp decline on Monday. While I do not think the Cyprus news is a big deal, I do think the Euros negative reaction to this positive news is a big deal. The inability to advance in the face of positive news is negative. Turning back to the price chart, FXE is now testing the 200-day moving average and the November low marks the next support zone in the 126 area. Key resistance is set at 130, a break of which is needed to reverse this downtrend.
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Chart 8
A fall in the Euro means a rise in the US Dollar Fund (UUP). Chart 9 shows UUP bouncing off support in the 22.35-22.40 area for the third time in three weeks. These March lows mark a clear support level to watch going forward. Overall, notice that UUP broke above the January high and exceeded the 200-day moving average with the February advance. The ETF became overbought after this sharp surge and worked off these oversold conditions with a consolidation in March. A continuation higher is expected as long as support at 22.35 holds.
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Chart 9
ITALIAN, FRENCH AND SPANISH STOCKS GIVE UP EARLY GAINS... European stocks opened higher, but worked their way lower in afternoon trading and fell sharply in the late afternoon. One days trading is usually not a big deal. However, it is clear that Europe is reacting negatively to the Cyprus deal. There are suggestions that Cyprus sets a precedent for future bailouts. Whatever the case, Italian, French and Spanish stocks led the way lower on Monday. Chart 10 shows the DJ Italy Stock Index ($ITDOW) breaking down in February and then consolidating in March. The index was above 128 earlier today, but then plunged below 125 with a sharp decline. Overall it looks like a triangle is taking shape and a break would signal a continuation lower. Chart 11 shows the DJ Spain Index ($ESDOW) forming a lower high in mid March and plunging towards 300 today. Chart 12 shows the DJ France Index ($FRDOW) giving up its early gains with a decline towards 255. Note that I am using the Dow Jones country indices because they are updated during the day. The benchmark indices, which are shown in the indicator window, are updated after the close (end-of-day (EOD)).
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Chart 10
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Chart 11
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Chart 12
20+ YEAR T-BOND ETF CHALLENGES DECEMBER TREND LINE... Treasuries hold the key to the risk-off/risk-on trade and the stock market. First, Treasuries move higher when the market is in risk-off mode. Second, Treasuries are negatively correlated with stocks. Chart 13 shows the 20+ Year T-Bond ETF (TLT) in an overall downtrend, which is positive for stocks. Short-term, TLT is showing some resilience and challenging the December trend line. A move above 118 would break this trend line and increase the chances of a medium-term trend reversal. Follow though with a break above the late February high would reverse the downtrend and this would be negative for stocks. Chart 14 shows the 10-year Treasury Yield ($TNX) with a corresponding support zone in the 18.3-19 area.
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Chart 13
