MID-CAPS AND SMALL-CAPS LAG, BUT MAINTAIN UPTRENDS -- TREASURIES SURGE AFTER RETAIL SALES REPORT -- MCCLELLAN SUMMATION INDICES BREAK SUPPORT -- NASDAQ AD LINE FORMS BEARISH DIVERGENCE -- GOLD TESTS KEY SUPPORT ZONE WITH SHARP DECLINE

MID-CAPS AND SMALL-CAPS LAG, BUT MAINTAIN UPTRENDS... Link for todays video. The S&P 500 ETF (SPY) and Dow Industrials SPDR (DIA) both hit fresh 52-week highs this week. Even the lowly Nasdaq 100 ETF (QQQ) managed a big gain and recorded a new high for 2013. The S&P MidCap 400 SPDR (MDY) and Russell 2000 ETF (IWM) also surged this week, but these two have yet to clear their March highs and are starting to show relative weakness. Chartists can add this to the list of growing concerns, which include weakening breadth, the six-month cycle, defensive sector leadership and a breakout Treasuries. Despite these concerns, MDY and IWM are still in uptrends and have yet to actually weaken. With this weeks bounce, both affirmed medium-term support levels that chartists should watch for a confirmed trend change. Chart 1 shows MDY opening below support last Friday, finishing the day above support and then rallying to 210 this week. It was an impressive performance that reminded us who is really in control of this trend (the bulls). The Raff Regression Channel and March low mark key support in the 202.50 area. In the indicator windows, +VI crossed back above VI and remains in bull mode. VI needs to cross above +VI and above 1.1 to trigger a bearish signal. The Aroon Oscillator dipped into negative territory, but needs to cross below -50 to trigger a bearish signal. Chart 2 shows IWM with the directional movement indicators and similar characteristics.

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Chart 1

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Chart 2

TREASURIES SURGE AFTER RETAIL SALES REPORT... The Commerce Department reported that retail sales declined by the most in nine months. After a 1% gain in February, retail sales declined by 4% in March, which was well below the consensus estimate. This unexpected decline put a bid into Treasuries as investors placed bets that the Fed would continue easing. Chart 3 shows the 20+ Year T-Bond ETF (TLT) breaking above resistance at 119 with a huge move last week. This move started well before last weeks employment data and then accelerated after Wednesdays ADP Employment Report and Fridays jobs report. TLT became quite overextended after a 7% surge and corrected earlier this week. With todays bounce, the resistance breakout has held and the trend for Treasuries is up. The indicator window shows the Correlation Coefficient (TLT, SPY). Even though the Correlation Coefficient turned positive in April, note that SPY and TLT have been negatively correlated for most of the last two years. Should this long-term tendency hold up, the recent breakdown in TLT would be negative for stocks. Notice how the decline in Treasuries fueled the rally in stocks from mid November to mid March. A rise in Treasuries could eventually starve stocks of the fuel needed to rally further. Chart 4 shows the 10-year Treasury Yield ($TNX) breaking below support with a sharp decline last week and holding this support break after a bounce this week.

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Chart 3

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Chart 4

MCCLELLAN SUMMATION INDICES BREAK SUPPORT... The Nasdaq and the NY Composite are in clear uptrends, but the momentum behind breadth is deteriorating and this could foreshadow a corrective period. Chart 5 shows the NYSE Summation Index ($NYSI) forming a lower high in mid March and breaking support with a decline in April. This is interesting because the NY Composite moved to a new high over the last four days. The lower high in the Summation Index and subsequent support break indicate that breadth momentum is not keeping pace with the current advance. The indicator window shows the McClellan Oscillator dipping to -50 in late February and below -50 in early April. Also notice that the indicator failed to exceed 30 on the March bounce. The weak bounce in March and deeper dip in April caused the Summation Index to form a lower high and break support. Chart 6 shows the Nasdaq Summation Index ($NASI) with similar characteristics.

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Chart 5

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Chart 6

The McClellan indicators measure the momentum of ratio-adjusted net advances [(advances-declines)/(advances + declines)]. The McClellan Oscillator is the 19-day EMA of Net Advances less the 39-day EMA of Net Advances. The McClellan Summation Index is a cumulative measure of the McClellan Oscillator. The Summation Index rises when the McClellan Oscillator is positive and falls when negative. You can read more on the McClellan Oscillator in our ChartSchool.

NASDAQ AD LINE FORMS BEARISH DIVERGENCE ... The Nasdaq and NYSE AD Lines remain in uptrends, but chart 7 shows the Nasdaq AD Line ($NAAD) with a bearish divergence working over the last five weeks. This divergence started with the lower peak in late March. It is becoming more pronounced with another lower high in April. Notice that the Nasdaq moved to a new high with the close at 3300 on Thursday. This divergence indicates that fewer stocks are participating in the advance, which undermines the foundation for the advance. Last weeks low marks key support for the AD Line and a move below this low would reverse the uptrend that has been in place since mid November.

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Chart 7

Chart 8 shows the NYSE AD Line ($NYAD) moving to a new high this week. There is no divergence and there are no signs of weakness. Strength in the NYSE can be attributed to strength in the healthcare, finance and consumer discretionary sectors. With this advance, the AD Line affirmed support extending back to mid March. A move below this support level would reverse the uptrend.

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Chart 8

The daily AD Lines are simply cumulative indicators based on daily Net Advances. The AD Lines when Net Advances are positive and fall when Net Advances are negative. As cumulative indicators, the AD Lines can be compared directly with the underlying indices. The uptrend is strong and confirmed when the index and the AD Line hit new highs. Trouble starts when the AD Line divergences from the underlying index.

GOLD TESTS KEY SUPPORT ZONE WITH SHARP DECLINE... Spot Gold ($GOLD) is under pressure again today and trading below support extending back to September 2011. Chart 9 shows gold within a trading range since forging the September 2011 low around 1530. Support here is important because bullion bounced off this zone in December 2011 and May 2012. A break here would target a move to the next support zone in the 1300-1350 area. The indicator window shows the Commodity Channel Index (CCI) with the blue lines marking support and resistance levels. A break above resistance signals an upturn in momentum, while a break below support signals a downturn. The 2013 highs mark CCI resistance now and a break above these levels is needed to turn momentum bullish again.

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Chart 9

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Chart 10

Chart 10 shows the Gold SPDR (GLD) breaking triangle support in early April, bouncing above 153 and then moving sharply lower again. The bounce above 153 looked strong from a percentage standpoint, but it was always within a bigger downtrend defined October trend line. The triangle highs and October trend line combine to mark resistance at 157. The indicator window shows RSI trading in a bear range since late October (20-60). A move above 60 is needed to turn momentum bullish again.