SPY AND QQQ STALL WITHIN UPTRENDS -- YIELDS SURGE AND BONDS FALL ON ECONOMIC DATA -- CRUDE'S FALLING FLAG CONTINUES TO FALL -- ENERGY SPDR BACKS OFF CHANNEL TREND LINE

SPY AND QQQ STALL WITHIN UPTRENDS... Link for today's video. There is no real change in the overall picture for stocks. The big trends are up for the major index ETFs and there are no signs of significant selling pressure, but the market is still quite extended and vulnerable to a corrective period. Corrections can evolve as trading ranges or pullbacks that retrace a portion of the prior advance. Chart 1 shows the S&P 500 ETF (SPY) advancing some 25% from its mid November low to its mid May high. The ETF is also up over 15% year-to-date, which makes for a good year in just the first six months. Logic suggests that the going will be tougher from here, but the markets are not always logical. SPY simply continues to advance within a rather narrow channel. This is a steady advance with relatively short pullbacks along the way. The ETF hit the upper trend line in mid May and moved sideways the last seven days. Last week's low marks first support. A break would argue for a correction towards the lower tlin. The indicator window shows the True Strength Index holding in positive territory since early December. You can read most on TSI in our ChartSchool. Chart 2 shows the Nasdaq 100 ETF (QQQ) surging from 67 to 75 and then consolidating the last seven days. Last week's low marks first support. Key support is set in the 69-70 area.

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Chart 1

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Chart 2

YIELDS SURGE AND BONDS FALL ON ECONOMIC DATA... The 20+ Year T-Bond ETF (TLT) bounced mid week, but fell again on Friday as positive economic news hit the tape. Consumer Confidence rose to its highest level since July 2007 and the Chicago PMI surged to 58.7, its highest reading of the year. This surge suggests that Monday's ISM Manufacturing Index release will also be positive. In any case, chart 3 shows TLT falling over 15% this month with a decline from 124 to 114. As John Murphy pointed out on Tuesday, TLT hit a 52-week low this week and is in a long-term downtrend. Admittedly, Treasuries are getting a bit oversold as we head into a big economic reporting week. Yes, the employment report is on Friday and Treasuries are pricing in strong jobs growth. The decline in TLT is positive for stocks because money needs to be reallocated to riskier assets. First resistance is set at 116.5 for now. A break above this level would be short-term positive and argue for an oversold bounce. Chart 4 shows the 10-year Treasury Yield ($TNX) for reference.

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Chart 3

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Chart 4

CRUDE'S FALLING FLAG CONTINUES TO FALL ... A bouncing Dollar and softening stock market weighed on oil Friday. As of late morning, the US Dollar Fund (UUP) is up around .50%, the S&P 500 ETF (SPY) is down a fraction and the US Oil Fund (USO) is down around .90%. Oil is having lots of trouble at resistance and cannot seem to break out. I am going to use the charts for spot oil and oil futures for this analysis. The takeaways can then be applied to USO. Chart 5 shows Spot Light Crude ($WTIC) surging to the upper trend line of a triangle formation and stalling the last four weeks. Oil closed above 95 the first two weeks of May and below 95 the last two weeks. A move above 97.5 would be long-term bullish for oil and target a move to the 2012 highs around 110.

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Chart 5

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Chart 6

StockCharts.com users can also create charts for oil futures. Chart 6 shows July 2013 Light Crude Futures (^CLN13) surging to the 97 area in early May and then correcting with a zigzag lower. The immediate trend (four weeks) is down. Also notice that oil formed lower highs in March and again in May. It looks like the bears have the edge right now, but that could change with a flag breakout. Even though the mid May high is out of place, the overall pattern could be just a correction, which translates into a falling flag. A close above this week's high (96) would signal a continuation higher and target further gains to the 103 area. Targets are based on flags flying at half-mast. The first leg was $11 and the second leg starts from the flag low (92). StockCharts.com users can see a symbol list for futures contracts by searching for a caret (^) in the symbol catalog.

ENERGY SPDR BACKS OFF CHANNEL TREND LINE... Chart 7 shows the Oil & Gas Equipment/Services SPDR (XES) breaking above resistance in early May and holding above this resistance break the last few months. While this breakout is bullish, it would be nice to see Spot Light Crude breakout as well. Broken resistance for XES turns into support in the 40 area. A break below the mid May low would negate this breakout and put XES back on the defensive. Even though the ETF hit a new high in mid May, the indicator window shows the price relative (XES:SPY ratio) peaking in mid February as XES continues to underperform this year.

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Chart 7

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Chart 8

Chart 8 shows the Energy SPDR (XLE) hitting the upper trend line of a rising channel and backing off. The ETF was overbought after a surge from 74 to 84 and ripe for a corrective period. Broken resistance in the 79-80 area turns into first support. The indicator window shows the price relative rebounding the last six weeks, but resistance could be near as this rebound approaching broken support.