APRIL LOWS NOW MARK KEY SUPPORTS FOR SPY AND DIA -- CONSUMER DISCRETIONARY AND RETAIL SPDR MAINTAIN UPTREND -- OIL AND GOLD SURGE. IS IT AN OVERSOLD BOUNCE OR MORE? -- ENERGY-RELATED ETFS SURGE ALONG WITH OIL
APRIL LOWS NOW MARK KEY SUPPORTS FOR SPY AND DIA... Link for todays video. With a big bounce over the last 3-4 days, the S&P 500 ETF (SPY) and the Dow SPDR (DIA) affirmed support levels that extend back to mid March. Chart 1 shows SPY plunging to 154 last Thursday and recovering with a surge back to 158 this week. This means a reaction low formed to affirm support in the 154 area. Notice that this is the third sharp pullback since the mid November low. These three pullbacks lasted 5-7 days and ended with breakouts and gaps. There was no looking back after the first two breakouts. These held as SPY continued higher. At this point, it is important that the breakout and surge hold. A move back below 155 would negate the breakout. It would, however, take a move below key support to fully reverse the medium-term uptrend. The indicator window shows RSI bouncing off the 40-50 zone for the third time since becoming oversold in mid November. Momentum remains bullish as long as RSI holds above 40. Chart 2 shows DIA with similar characteristics.
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Chart 1
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Chart 2
CONSUMER DISCRETIONARY AND RETAIL SPDR MAINTAIN UPTREND... Chartists should watch the Consumer Discretionary SPDR (XLY) and the Retail SPDR (XRT) for clues on the great American consumer. So far, these two ETFs are in uptrends and the death of the consumer has been greatly exaggerated. Chart 3 shows XLY trending higher since the mid November low. The last correction was in October-November when the ETF fell around 6%. Thats not much of a correction. There were also flat corrections in December and February (red boxes). As with SPY and DIA, the April lows mark key support for the uptrend in XLY. The indicator window shows RSI holding the 40-50 zone since December. Chart 4 shows XRT bouncing off support in the 69 area over the last few days. This bounce keeps the uptrend alive and affirms key support from the April lows.
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Chart 3
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Chart 4
OIL AND GOLD SURGE. IS IT AN OVERSOLD BOUNCE OR MORE?... Commodities got a lift on Wednesday with Spot Light Crude ($WTIC) surging over $2 and Spot Gold ($GOLD) advancing over 15$. Both gold and oil were extremely oversold after their early April plunges and oversold bounces are perfectly normal. At this stage, the oversold bounce does little to change the overall trends, which remain down. Chart 5 shows $WTIC forming a lower high in early April and then plunging below its March lows. Oil was down over 10% in less than three weeks and extremely oversold. I am marking a resistance zone in the 92-93 area. Broken support, the November trend line extension and the 50-61.80% retracement zone mark resistance here. This is just an oversold bounce as long as resistance holds.
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Chart 5
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Chart 6
Chart 6 shows gold plunging over $250 in April and becoming oversold below 1350. Bullion bounced back above 1400, but this is still considered an oversold bounce within a larger downtrend. It hard to say how long or how far this bounce will extend. Gold is wounded and only time will heal these wounds. The 38.2% retracement marks first resistance in the 1434 area.
ENERGY-RELATED ETFS SURGE ALONG WITH OIL... The Energy SPDR (XLE) and Oil & Gas Equipment/Services SPDR (XES) took advantage of the rebound in oil and led the market on Wednesday. Chart 7 shows XLE breaking below 74 last week and climbing back above 77 this week. Trading has turned quite volatile since the February plunge, which established support. I suspect that last weeks support break reversed the uptrend and this bounce is just an oversold bounce, which may end sooner rather than later. Notice that XLE is already trading in the gap zone and at the 61.80% retracement. The indicator window shows RSI breaking below 40 for the first time since mid November. This move turned momentum bearish and the 50-60 zone now becomes resistance.
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Chart 7
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Chart 8
Chart 8 shows the Oil & Gas Equipment/Services SPDR peaking in mid February and working its way lower with a series of falling peaks and troughs. The trend since mid February is clearly down. As with oil, the surge over the last five days looks like an oversold bounce within a bigger downtrend. XES was quite oversold after a 10% plunge (40 to 36) and an oversold bounce is normal. The indicator window shows RSI turning bearish with a break below 40 in early April. The 50-60 zone now turns resistance.
EUROPEAN TOP 100 INDEX HOLDS SUPPORT WITH BIG MOVE... Credit for the commodity bounce also goes to the European Central Bank (ECB), which is expected (rumored) to lower interest rates because of weakness in the EU economy. The ECB has yet to embark on quantitative easing like the US, Bank of England and Bank of Japan, but may need to lower rates to stimulate the economy. Chart 9 shows the European Top 100 Index ($EUR) reacting to this speculation with a surge off support over the last few days. This move reinforces support and the overall uptrend.
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Chart 9
ITALIAN AND GERMAN BONDS SURGE ON ECB EXPECTATIONS... It also appears that Italian and German bonds are anticipating a rate cut from the European Central Bank (ECB). Chart 10 shows the Italian Treasury Bond Futures ETN (ITLY) bottoming in March and breaking out in early April. This breakout preceded an upturn in the DJ Italy Stock Index ($ITDOW), which tracks the Italian Milan Index ($MIB) quite closely. Money is moving into Italian debt and this is positive for Italian equities. Why? Because the markets have been concerned with Italian debt and buying interest is a sign of confidence. Chart 11 shows the German Bund Futures ETN (BUNL) bottoming in February and surging to a new high. Notice that BUNL has a strong positive correlation with the 7-10 year T-Bond ETF (IEF). Remember, yields move lower when bond prices move higher. A surge in bonds means yields moved lower and the market is anticipating lower rates.
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Chart 10
