TREASURIES BOUNCE AFTER FED STATEMENT -- QQQ GRABS THE LEAD WITH A NEW HIGH -- RETAILERS LEAD CONSUMER DISCRETIONARY SPDR WITH BREAKOUT -- HOME CONSTRUCTION ISHARES SURGES OFF NECKLINE SUPPORT -- GOLD STALLS AT BROKEN SUPPORT
TREASURIES BOUNCE AFTER DISINFLATIONARY TONE IN FED STATEMENT... Link for today's video. The Fed did not change its quantitative easing stance, but did make some minor changes to its statement. In particular, the Fed noted that growth has moved from moderate to modest. The Fed also noted that inflation remains below its target and could stymie economic growth. Even though we are not seeing deflation, disinflation remains a possibility for the markets to ponder. Treasuries loathe inflation because inflation usually leads to tighter monetary policy. Disinflation, on the other hand, could benefit Treasuries because the Fed is unlikely to tighten in a disinflationary environment. The 20+ Year T-Bond ETF (TLT) was trading lower before the Fed statement and moved off its low after the statement. This bounce, however, is not enough to reverse the overall downtrend. TLT hit a new low in early July and key resistance is set in the 110-111 area. The indicator window shows the Aroon indicators with Aroon Down remaining above Aroon Up. Chart 2 shows the 10-year Treasury Yield ($TNX) with support marked at 2.4% (24).
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Chart 1
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Chart 2
QQQ GRABS THE LEAD WITH A NEW HIGH... The major index ETFs were little changed just before the Fed statement and little changed afterwards. Despite these small changes, trading was rather choppy before and after the Fed statement. Large-cap techs showed some strength as the Nasdaq 100 ETF (QQQ) moved to a new high intraday. Chart 3 shows the ETF gapping down on July 19th, firming for a few days and then filling the gap with a move to new highs over the last five days. Broken resistance and the early July gap combine to mark key support at 73.50. The indicator window shows the QQQ:SPY ratio making a wild roundtrip the last few weeks. This ratio surged in mid July as QQQ outperformed, but plunged below its June low. This plunge did not last long as the ratio surged the last five days and QQQ regained its relative strength. Chart 4 shows the Nasdaq 100 Equal-Weight ETF (QQEW) hitting a new high during the day on Wednesday.
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Chart 3
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Chart 4
RETAILERS LEAD CONSUMER DISCRETIONARY SPDR WITH BREAKOUT... The Retail SPDR (XRT) also showed some strength with a breakout and 52-week high. Note, however, that the ETF closed near its low for the day and this breakout is already in jeopardy. Chart 5 shows XRT breaking to new highs in early July and then consolidating the last few weeks. This consolidation ended as XRT broke above its July highs to forge a 52-week high on Wednesday. Last week's lows mark first support at 80 for now. The indicator window shows the price relative (XRT:SPY ratio) in a clear uptrend since April. Even though the indicator has yet to record a 52-week high, the retail group has consistently out performed the broader market for four months now. The Consumer Discretionary SPDR (XLY) benefited from the surge in retailers as XLY challenged flag resistance. As with XRT however, XLY backed off resistance and closed off its highs. The overall trend remains up and a break above flag resistance would signal a continuation higher.
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Chart 5
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Chart 6
HOME CONSTRUCTION ISHARES SURGES OFF NECKLINE SUPPORT... The consumer discretionary sector also got some help from homebuilders as the Home Construction iShares (ITB) surged over 2%. Chart 7 shows ITB hitting support from the 2013 lows last week, firming for a few days and then surging above 22 today. Even though this bounce affirms support, it is not enough to reverse the downtrend that began in late May. Follow through is needed to turn this bounce into something more. A move above 23.50 would break the May trend line and exceed the mid July high. The head-and-shoulders remains possible as long as resistance holds, but a break below neckline support is needed for confirmation. The indicator window shows ITB underperforming SPY as the price relative trends lower. Chart 8 shows Ryland Group (RYL) with a similar pattern.
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Chart 7
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Chart 8
GOLD STALLS AT BROKEN SUPPORT... Gold had a great run the last five weeks, but met resistance and stalled the last few days. Chart 9 shows Spot Gold ($GOLD) over the last two years for a long-term perspective. First, note that the long-term trend is clearly down. This means the bounce over the last five weeks is viewed as a bear market rally. Gold broke above first resistance at 1300 with a surge last week and then stalled this week. This stall is occurring near broken support from the April-May lows. A move back below 1300 would negate the breakout and put the bigger downtrend back in play. The indicator window shows CCI edging above its January high. This is the most upside momentum we have seen all year. CCI is, however, still in negative territory and a dip back below -100 would be bearish.
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Chart 9
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Chart 10
Chart 10 shows daily candlesticks for the Gold SPDR (GLD). GLD surged over 10% and then hit resistance from broken support in the 130 area. Also notice that this area marks a 50-61.80% retracement of the prior decline. GLD broke the late June trend line with today's decline. It is possible that a small wedge or pennant is taking shape the last two weeks. A break above 129 is needed to confirm this pattern and revive the bulls. Chart 11 shows the Silver Trust (SLV) with a rising flag/wedge the last five weeks. This rise was rather tepid as the ETF established resistance at 20.
