SMALL-CAPS AND LARGE-TECHS LEAD THE MARKET -- AD LINE AND AD VOLUME LINE BREAK OUT TO NEW HIGHS -- REVISITING A LONG-TERM TARGET FOR GOLD -- DOLLAR CHALLENGES KEY LEVEL -- SEASONALITY FOR S&P 500, GOLD, OIL, DOLLAR AND TREASURIES

SMALL-CAPS AND LARGE-TECHS LEAD THE MARKET... Link for today's video. Four of the five major index ETFs I track recorded new highs this week to affirm the current uptrend in the stock market. These include the S&P 500 SPDR (SPY), the Nasdaq 100 ETF (QQQ), the S&P MidCap SPDR (MDY) and the Russell 2000 ETF (IWM). The Dow Diamonds (DIA) is the only one that did not record a new high, but this ETF is within a percent of its 52-week high, which is close enough. While chartists can argue about overbought conditions and the likelihood of a correction, there is no debate on the current trend (up). On the price charts, we saw IWM and QQQ break falling flag resistance to signal yet another continuation of the existing uptrend. One of these breakouts will fail one day, but I will treat the current breakouts as bullish until proven otherwise. Chart 1 shows QQQ breaking the flag trend line with a surge on Tuesday and gapping up on Wednesday. Broken resistance in the 87.5-88 area turns first support. A quick and sharp move back below 87 would argue for a failed breakout and reassessment of the short-term uptrend. Medium-term, the flag lows mark key support in the 86 area. The indicator window shows the price relative (QQQ:SPY ratio) hitting a new high as QQQ (large techs) continue to outperform SPY, which represents the broader market.

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Chart 1

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Chart 2

Chart 2 shows IWM breaking above flag resistance last week, but getting cold feet earlier this week with a plunge below 114. This selling pressure did not last long as IWM immediately recovered and broke above the late December high. The gap and broken resistance mark first support in the 115 area. A quick and sharp move back below 115 would call for a reassessment of this bullish breakout. Medium-term, I will mark support at 113. The indicator window shows the price relative breaking out just before Christmas and moving higher in 2014. Small-caps are outperforming large-caps again and this is positive for the market overall.

AD LINE AND AD VOLUME LINE BREAK OUT TO NEW HIGHS... Despite weakness in the retail group this week, the AD Line and AD Volume Line for the S&P 1500 moved to new highs. New highs in these key breadth indicators tell us that there is broad underlying strength in the stock market. In other words, there may be a few pockets of weakness, but there are clearly more pockets of strength than weakness. With new highs in these breadth indicators and the S&P 1500, there are no bearish divergences to be concerned about right now. Chart 3 shows the S&P 1500 AD Line ($SUPADP) breaking above its late December high with a surge this week. Chart 4 shows the S&P 1500 AD Volume Line ($SUPUDP) also hitting a new high and extending its uptrend.

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Chart 3

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Chart 4

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Chart 5

Chart 5 shows the S&P 1500 High-Low Line ($SUPHLP) moving to a new high as well. This indicator has been above its 10-day EMA since November 2012, which means it has captured the entire bull run. The lower indicator window shows high-low percent above 10% this week as new highs comfortably outpace new lows. As far as signals are concerned, we will need to wait for high-low percent to dip below 2% to signal a pullback in breadth. The green dotted lines show prior moves below 2%.

REVISITING A LONG-TERM TARGET FOR GOLD... Spot Gold ($GOLD) got a bounce over the last few weeks, but this bounce still looks like a corrective move within a bigger downtrend. First, let's look at the monthly chart for some perspective. Chart 6 shows gold breaking the 24-month moving average with a move below 1600 in January 2012 and falling to the 1200 area in 2013. Bullion broke a multi-year trend line in the process and the long-term moving average turned down. Gold firmed near the summer lows with a bounce this month, but I would not call this a solid support level because the big trend is down, which means support levels are meant to be broken eventually. At this point, I am marking a downside target in the 1000 area. Broken resistance, the January 2010 low and the middle of the 50-62% retracement zone mark the target here. Note that I first put forth this $1000 target in ChartWatchers on July 5th. .

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Chart 6

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Chart 7

Chart 7 shows the Gold SPDR (GLD) getting a bounce back to the 120-121 area this year. Even though this bounce could extend, I consider it a corrective move within a bigger downtrend and expect a lower high to form at some point. Broken supports and the Fibonacci cluster zone mark resistance in the 122-125 area.

DOLLAR CHALLENGES KEY LEVEL... The Dollar also got a bounce over the last few weeks and is challenging the November high. Yes, gold and the Dollar are both up year-to-date. Chart 8 shows the Dollar Index ($USD) finding support in the 79-80 area at the end of 2013 and moving back above 81 this week. There is a lot of support in the 79-80 area and a break above the November high would argue for an advance to the upper end of the rising channel (85-86 area). As long as the index consolidates near support, it is possible that a triangle forms and chartists should watch the December low for a bearish breakdown that would throw cold water on my bullish bias.

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Chart 8

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Chart 9

The Dollar Index ($USD) and the US Dollar ETF (UUP) are dependent on the Euro because the Euro-Dollar cross is the biggest influence (~57%). Chart 9 shows the Euro ETF (FXE) hitting resistance near the October highs in December and moving lower this year. The ETF is testing first support at 134 now. Support here stems from the early September trend line and last week's low. A break would argue for a bigger support test in the 132 area, wherein lies the 200-day moving average. The indicator window shows MACD in negative territory over the last few days.

SEASONALITY FOR S&P 500, GOLD, OIL, DOLLAR AND TREASURIES ... I showed the seasonality tool on Monday to highlight some historical patterns in retail stocks. Today, I took some of the seasonal data and entered it into an excel spreadsheet to create an intermarket table for 2014. Using conditional formatting, I added a color scheme to show the strongest months in green and the weakest in red, which is similar to a MarketCarpet. The numbers show the percentage of time prices gained for a particular month. Keep in mind that seasonal data should not be used by itself. Instead, it is meant to complement other analysis techniques. A bullish breakout with positive seasonal patterns carries more weight, as does a bearish break down with negative seasonal patterns. This seasonal data represents prior tendencies and should not be considered gospel. I would look for really lopsided seasonal tendencies. Numbers above 70% have a strong bullish bias, while numbers below 30% have a strong bearish bias.

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Chart 10

Moving from January to December on chart 10, notice that Spot Light Crude ($WTIC) moved higher 63% of the time in February and 68% of the time in March. Also notice that oil moved higher 79% of the time in July, which is probably because of summer driving demand. For stocks, March, April and December were higher 74% of the time, while February only managed a gain 53% of the time.

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Chart 11

Turning to gold, the first half of the year could be a struggle because only two months show readings above 50%. June was the weakest month because gold advanced only 32% of the time. Gold bulls may need to wait until September (74%) for a decent bounce. Treasury bonds had it rough in March with gains only 21% of the time. This likely goes hand-in-hand with strength in stocks for March and April. The Dollar typically starts strong in January, but weakens the rest of the year before getting a bump in November.