TREASURY YIELDS SURGE ON JOBS REPORT AND REVISIONS -- SETTING A CHANNEL TARGET FOR THE S&P 500 ETF -- LEADERSHIP IN TECH AND CONSUMER DISCRETIONARY IS POSITIVE -- EW TECHNOLOGY ETF BREAKS CONSOLIDATION RESISTANCE
TREASURY YIELDS SURGE ON JOBS REPORT AND REVISIONS... Link for todays video. The markets went through the employment wringer this week with the ADP report showing weak job growth on Wednesday, jobless claims dropping to a five year low on Thursday and non-farm payrolls growing a better-than-expected 165,000 in April. Also note that February and March non-farm payrolls were revised sharply higher. The unemployment rate dropped to a four year low of 7.5%. Positive news on the job front sent Treasury yields sharply higher and Treasury bonds sharply lower. Chart 1 shows the 10-year Treasury Yield ($TNX) surging back towards the 1.7% area, after dipping to the 1.6% area on Thursday. Despite this bounce, I am not quite ready to turn bullish on yields because the wedge break remains in play. There is a lot of support in the 1.6% area, but I would like to see a break above 1.8% before taking this bounce seriously. In other words, the wedge break is the dominant chart feature until then.
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Chart 1
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Chart 2
A decline in yields translates into a rise in Treasury bond prices because these two move in opposite directions. Chart 2 shows the 7-10 year T-Bond ETF (IEF) breaking above its 2012 high over the last few weeks, but moving back through this breakout today. Perhaps we will see a failed breakout and move back towards consolidation support. As noted on Wednesday with XLB, the Stochastic Oscillator is a good momentum oscillator for trading ranges. The indicator shows Slow Stochastics (5,3) because this is a weekly chart and I want to increase sensitivity. The indicator turned down and broke its signal line this week. A move below 80 would complete this signal.
SETTING A CHANNEL TARGET FOR THE S&P 500 ETF... Stocks reacted positively to the employment report and the decline in Treasury bonds. For the most part, stocks and Treasuries have been negatively correlated the last few years. This negative correlation, however, was challenged over the last five weeks as both moved higher. With todays inverse moves, perhaps the negative correlation is getting back on track. Chart 3 shows the S&P 500 ETF (SPY) hitting a new high today as it advances within a possible rising channel. The upper trend line extends from the March 2012 high and reaches the 1700 area over the next few months. The March-April lows mark first support in the 153.5 area and the lower trend line marks support in the 145 area. Chart 4 shows the S&P MidCap 400 SPDR (MDY) moving to a new 52-week high this week. The ETF may be underperforming SPY over the last few weeks, but it is hard to argue with a 52-week high and clear uptrend.
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Chart 3
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Chart 4
LEADERSHIP IN TECH AND CONSUMER DISCRETIONARY SECTORS IS POSITIVE... After a swoon in mid April, stocks rebounded with a surge over the last two weeks and two important offensive sectors took the lead. The Equal-weight Technology ETF (RYT) and Equal-weight Consumer discretionary ETF (RCD) led the way with fresh 52-week highs this week. These two are clearly keeping pace with the S&P 500 and leading the market in 2013. PerfChart 5 shows the nine equal-weight sector ETFs relative to the S&P 500 Equal-Weight ETF (RSP) over the last four weeks. RCD (blue) and RYT (green) are up more than the benchmark, which is RSP. Relative strength in the consumer discretionary sector is positive because it is the most economically sensitive sector. Relative strength in the technology sector is positive because it represents the appetite for risk and the growth end of the market. On the flipside, the Equal-weight Energy ETF (RYE) and the Equal-weight Materials ETF (RTM) are lagging the market now. Note: this PerfChart does not include todays data.
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Chart 5
EQUAL-WEIGHT TECHNOLOGY ETF BREAKS CONSOLIDATION RESISTANCE... Chart 6 shows the Equal-weight Technology ETF (RYT) breaking triangle resistance at the end of December, consolidating in February-April and then breaking to new highs this week. Buying pressure is still outpacing selling pressure on this chart. The breakout reinforces the uptrend and support at 58. Notice that broken resistance first marked support in this area. The ETF bounced off the 58 area in February and again in April. The indicator window shows the Commodity Channel Index (CCI) holding above the zero line and moving back above +100. Even though +100 is considered overbought, a move into this area is a sign of strength, not weakness. It would take a move below zero to turn momentum bearish.
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Chart 6
EQUAL-WEIGHT CONSUMER DISCRETIONARY ETF AIMS FOR CHANNEL TREND LINE ... Chart 7 shows the Equal-weight Consumer discretionary ETF (RCD) within a rising price channel the last 18 months. A trend in motion stays in motion so chartists should consider upside targets before downside targets. The upper channel trend line is the next long-term target in the 70 area. This is a bit of a guesstimate. Support, however, is not. The lower trend line and February lows mark key support in the 59-60 area. The indicator window shows RSI with three distinct moves (pink lines). Momentum is firmly bullish as long as RSI holds the 40-50 zone.
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Chart 7
MOO AND IGN CHALLENGE CHANNEL TREND LINES... The Networking iShares (IGN) and the Agriculture ETF (MOO) have been lagging the market this year because both peaked a couple months ago and worked their way lower with falling channels. Both ETFs got bounces over the last few weeks and could be poised to play some catch-up. Chart 8 shows MOO hitting support in the 50-61.80% retracement zone around 51.5-52.5. Also notice that this area marks support from broken resistance. MOO surged off this support level and broke the channel trend line. The Aroon Oscillators confirmed strength as Aroon Up exceeded Aroon Down and reached 100. Chart 9 shows IGN with a weaker bounce because it has yet to break the channel trend line. Also notice that Aroon Up has yet to break above Aroon Down. A little follow through is needed to get the breakout.
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Chart 8
