QQQ CHALLENGES SEPTEMBER HIGH -- APPLE AND GOOGLE PERK UP, BUT AMAZON UNDERPERFORMS -- IWM AND MDY TURN VOLATILE, BUT HOLD SUPPORT -- S&P 500 CONSOLIDATES NEAR CHANNEL TREND LINE -- PERCENTAGE OF STOCKS ABOVE 200-DAY SMA REMAINS AT HIGH LEVELS
QQQ CHALLENGES SEPTEMBER HIGH... Link for todays video. April volatility continued as the Nasdaq 100 ETF (QQQ) surged back above 70 for the second time this month. With this gain, QQQ is again flirting with a 52-week high and showing upside leadership. Chart 1 shows the ETF with two patterns taking shape. First, a rising channel defines the current uptrend and marks upper resistance in the 71 area. Second, a broadening formation reflects increasing volatility and also targets a move to the 71 area. Even though broadening formations are normally considered bearish, the rising channel looks like the dominant chart pattern here. The lower trend line and April lows mark key support in the 67 area. The indicator window shows RSI bouncing off the 40-50 zone for the third time since late December. Also notice that MACD bounced of the zero line for the third time. Both momentum indicators need to break their respective supports before considering a downtrend on this chart.
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Chart 1
APPLE AND GOOGLE PERK UP, BUT AMAZON UNDERPERFORMS... Intel and Microsoft account for a large part of QQQ strength and both are up over 10% this month. We are also seeing strength in Google and a rebound in Apple. Chart 2 shows Google (GOOG) surging above resistance with a long white candlestick in mid April and holding this breakout the last five days. Notice how broken resistance turned into support in the 795 area. MACD moved back into positive territory last week as well. Chart 3 shows Apple (APPL) rebounding with a bounce back above 420. The six day advance is the strongest since November 2012, but the stock remains in a downtrend overall and first resistance is at hand. The early December trend line, early April consolidation and 38.2-61.80% retracement zone mark resistance in the 420-440 area. Chart 4 shows Amazon (AMZN) lagging as it tests support from the February-March lows. The stock fell sharply after earnings and the price relative moved to a six month low.
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Chart 2
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Chart 3
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Chart 4
IWM AND MDY TURN VOLATILE, BUT HOLD SUPPORT... Volatility increased over the last four weeks, but the Russell 2000 ETF (IWM) held support and remains in an uptrend overall. Chart 5 shows the 1-week rate-of-change for IWM in the indicator window. Starting the first week of April (blue arrow), this indicator dipped below -2% twice and bounced above +2% twice with a down-up-down-up sequence. May 2012 was the last time we saw such a volatile sequence and May marked a bottom as the ETF broke resistance in late June. At this point, the pattern reflects a tug-o-war between bulls and bears as buying pressure and selling pressure equalize. The bulls still have the edge overall because IWM established support in the 88-89 area and held this level with last weeks surge back above 92. A break below 88 would provide the straw to break the bulls back.
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Chart 5
Volume is also starting to pick up as the 4-week moving average surged to its highest level since June. Also notice that downside volume has been outpacing upside volume since late February. IWM declined on 340 million shares two weeks ago and bounced on just 214 million shares this past week. This increase in downside volume and decrease in upside volume is a concern. Chart 6 shows the S&P MidCap 400 SPDR (MDY) with similar characteristics.
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Chart 6
S&P 500 CONSOLIDATES NEAR CHANNEL TREND LINE... The S&P 500 remains in a strong uptrend, but the index is trading at the top of a rising channel with May just a few days away. I have talked about the six month cycle and the sell-in-May adage for a few weeks now. Cycles are tricky because they are sometimes early, sometimes timely or sometimes late. Sometimes they completely miss the mark. This is why chartists should use other aspects of technical analysis for signals to confirm a cycle. The six month cycle is on the verge of turning bearish, but we have yet to see a confirming signal from the S&P 500. Chart 7 shows weekly bars for the S&P 500 with the last four Aprils highlighted in yellow. The index is consolidating near the upper trend line of a rising channel. A move below 1535 would break consolidation support and argue for a correction.
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Chart 7
The red dotted lines signal when the MACD-Histogram turned negative, which means weekly MACD moved below its signal line. The 2011 signal was early, but notice how the MACD-Histogram broke support at the end of May for a confirming signal. S&P 500 momentum is currently bullish because MACD is above its signal line and the histogram is positive. A downturn and bearish crossover from MACD could foreshadow a correction or retracement of the November-April advance.
PERCENTAGE OF STOCKS ABOVE 200-DAY SMA REMAINS HIGH... We can get an idea of underlying market strength with breadth indicators for the S&P 500 and the Nasdaq 100. I noted that the percentage of stocks above their 50-day SMA broke down in mid April, but rebounded sharply over the last six days. The 50-day moving average is a medium-term indicator that is more sensitive to signals than the 200-day moving average, which is a long-term trend indicator. It is hard to have a significant decline when the vast majority of stocks are trading above their 200-day moving averages. Chart 8 shows the S&P 500 %Above 200-day SMA ($SPXA200R) moving above 80% in January and holding above this level for over three months. The overall percentage remains at high levels and we have yet to see a significant divergence. We do, however, have a support area to watch around 82.5%. This area marks the lows in late February and mid April. Adding a little buffer, I would suggest that this indicator is firmly bullish as long as it holds above 80%. The prior bearish signals occurred when the indicator formed a divergence and THEN broke below the prior lows. Chart 5 shows the Nasdaq 100 %Above 200-day SMA ($NDXA200R) with support around 74%.
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Chart 8
