FED DAY SHOWS OUT OF CHARACTER HIGH VOLUMES -- DECLINING NUMBER OF NET NEW HIGHS IS PROBLEMATIC -- THE XLF, $XBD AND KRE ARE MAKING NEW HIGHS -- THE INSURANCE GROUP IS LAGGING -- BONDS CONTINUE TO UNDERPERFORM STOCKS -- THE $USD LOOKS TO BE TURNING UP
THE FED DAY SHOWS OUT OF CHARACTER HIGH VOLUMES.... The stock market roared to life on Wednesday with the Fed announcement of some tapering. Chart 1 shows the QQQ hitting the highest volume since January 2, 2013. While December 2012 average volumes were higher, this was a huge volume day in a normally quiet month.
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Chart 1
Chart 2 below shows the Fed dates 2 days after the blue vertical lines along with the $SPX volumes. You can see it was not quite as powerful on the $SPX as the QQQ, but the volume was the largest for the Fed meetings for the 2013 year. We only had one up day since January with volumes this large. That day was the options expiration Friday after the June Fed meeting. The following Monday, June 24th, marked the June low and the market rocketed higher from there. There are two sides to this coin. More sellers showed up to take advantage of the higher prices and sell into strength. More buyers showed up to take part in the rally.
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Chart 2
DECLINING NUMBER OF NET NEW HIGHS IS PROBLEMATIC... Using the $NYHL and the $NAHL we can see if the advance is broad across many stocks or just a few. In this case, it would appear that only a few are still climbing to new highs. Chart 3 shows the number of new highs minus new lows. On a huge up day, so close to all time highs, we would have expected a very large positive number. The reality is a very low number that means only a few stocks are pushing the market up here. We will need the market to broaden out to keep the uptrend intact.
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Chart 3
Chart 4 shows the Nasdaq marketplace. You can also see that when the market reaches 0 net new highs, it tends to rally from there. When we go below zero (more stocks making new lows than making new highs), we would expect to be in a downtrend. Above the shaded area is a normal uptrend.
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Chart 4
THE XLF, $XBD AND KRE ARE MAKING NEW HIGHS... While the financial Sector ETF, XLF is making new highs, we are also seeing the Broker Dealers and the Regional Banks making new highs as well. This continues to be bullish as shown in Chart 5.
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Chart 5
THE INSURANCE GROUP IS LAGGING IN RELATIVE STRENGTH RECENTLY.... This is a relatively new change but investors in this sector may wish to protect profits. Chart 6 shows the relative strength line below the Insurance sector chart. This is an important change in trend. This could be a clue if bonds are about to reverse. We can see the Insurance sector started to climb when the bond prices broke down by comparing chart 6 to chart 7.
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Chart 6
BONDS CONTINUE TO UNDERPERFORM STOCKS... As long as this relative strength relationship continues, where bonds underperform stocks, we should see bond prices move lower. The 10 Year Yield is moving up to test the September highs today. Chart 7 could make a strong signal when the Relative strength line moves above the upper trend line to guide when bonds might come back into favor. The current answer is not yet.
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Chart 7
THE $USD APPEARS TO BE TURNING UP... The Euro has been on a power move up recently but seems to have created a double top here so far. I put the Euro chart in the middle as the primary chart so it would be larger than the other charts. The last few days have shown the Euro rolling over at the previous high. Chart 8 also shows the Aussie Dollar at new 3 year lows, the Canadian dollar at new 3 year lows and the yen breaking down again. As the $USD gains strength against all these currencies, we should see it start to power higher. This would make it difficult for commodities to rise that are priced in $USD.
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Chart 8
$GOLD LOOKS FOR SUPPORT AT $1180.... Chart 9 is a chart of the $GOLD ETF, GLD, and you can see it is testing the June lows today. SLV is doing the same. This is an important time for $GOLD. If the $USD pushes higher, just as $GOLD needs to find support, we could see the bottom fall out. The timing for a long trade looks good for a bounce here, but working against a rising $USD will make it a difficult trade.
