COPPER FOLLOWS THE DOLLAR LOWER -- SLOW AND STEADY WINS THE RACE FOR STOCKS -- 10-YR TREASURY YIELD BREAKS FEBRUARY HIGH -- IEF FORGES OUTSIDE REVERSAL WEEK -- KEY BREADTH INDICATORS CONFIRM STOCK MARKET STRENGTH

COPPER FOLLOWS THE DOLLAR LOWER... Link for today's video. Stocks extended their winning days as most of the major stock indices hit new highs again this week. A new high in the Finance SPDR (XLF) and renewed relative strength in the finance sector is perhaps the most significant development this week. With a new high, the Finance SPDR joins the Consumer Discretionary SPDR, Technology SPDR and the Industrials SPDR with new highs. Also note that the Retail SPDR is within 2% of a new high after a monster run the last five weeks. There were some concerns with strength in Treasuries last week because stocks are negatively correlated with Treasury bonds, but this concern evaporated as the 20+ YR T-Bond ETF fell sharply this week and the 10-YR Treasury Yield surged above 2.8%. A surge in rates indicates that the economy is on a good footing and this creates a positive backdrop for stocks. Once again, short-term overbought conditions are the only negative, which is a pretty good negative to have. IWM is up around 10% since February 3rd, while SPY and QQQ are up around 8%. These are big moves in a short period of time and the stock market may need some time to digest its gains. Long-term, new highs affirm the big uptrends and participation remains broad. As pointed out by Greg Schnell earlier this week, the Copper ETF and US Dollar ETF broke down this week as the Euro ETF broke triangle resistance. German exporters cannot be happy with such strength in the Euro.

BULLISH EVIDENCE OUTWEIGHS BEARISH CONCERNS... Bullish Items

• The S&P 500, S&P LargeCap 100, S&P MidCap 400, S&P SmallCap 600 and S&P 500 Equal-Weight Index hit new highs in early March. This shows broad strength in the stock market.
• The Russell 2000 and the $RUT:$OEX ratio hit new highs in early March. Relative and absolute strength in small-caps is positive overall.
• The Nasdaq 100 and Nasdaq hit new highs in early March, as did their price relatives. The high-beta and high-risk ends of the market show relative strength.
• XLY/RCD, XLK/RYT, XLF/RYF and XLI/RGI hit new highs in early March. These ETF pairs represent the offensive sectors and all four are strong (consumer discretionary, technology, finance and industrials).
• S&P 1500 AD Line, AD Volume Line and High-Low Line hit new highs in early March. All breadth indicators are strong and support the market advance.
• ISM Services (51.6) slipped in February, but Manufacturing (53.2) rebounded. Both indices remain above 50 and still favor expansion.
• The Home Construction iShares (ITB) and its price relative (ITB:SPY ratio) hit new highs in late February. Relative strength in homebuilders is positive overall.

Concerns

• The Dow Industrials and Dow Transports remain below their yearend highs and have yet to confirm the other indices.
• February auto sales ticked up, but remain subdued and just above the 15 million mark.
• January retail sales (ex autos) were flat (economy stalling)
• Fed started tapering program in November (less liquidity).

SLOW AND STEADY WINS THE RACE FOR STOCKS... The S&P 500 remains in a slow and steady uptrend on the weekly chart. After some horrendous volatility in the summer of 2011 and two 9-11% corrections in 2012, the advance since November 2012 has not seen a correction greater than 8% from high to low. There was an 8% correction in May-June 2013 and a 6% correction earlier this year. These corrections were measured from high to low, as opposed to closing levels. The corrections have gotten smaller and this means volatility is contracting. While some may argue complacency, low volatility means low risk and this creates a positive backdrop for stocks. Chart 3 shows the S&P 500 with the zigzag indicator set at 6% to show price movements greater than 6%. The trend line zone marks first support and the December-February lows mark key support in the 1750 area. The indicator window shows the Commodity Channel Index (CCI) moving into positive territory in December 2012 and holding positive for over fourteen months. Chart 4 shows the S&P 500 Equal-Weight Index ($SPXEW) hitting a new high as well this week. The trend line zone marks first support and key support is set at 2700. The indicator window shows the price relative ($SPXEW:$SPX ratio) moving to a new high as the equal-weight version outperforms the large-cap version. This means small and mid-caps are outperforming large-caps.

10-YR TREASURY YIELD BREAKS FEBRUARY HIGH... February non-farm payrolls came in better-than-expected, while the numbers for December and January were revised higher. Treasury bonds reacted with a sharp decline and Treasury yields moved higher. Chart 4 shows the 10-YR Treasury Yield ($TNX) breaking three resistance levels from December 2012 to June 2013. Broken resistance in the 2.4% area held in October and February. With today's move above 2.8%, the 10-YR Treasury Yield looks poised to continue the long-term uptrend and move decisively above 3%. The indicator window shows RSI trading it its bull range since February 2013. Notice that RSI stabilized in the 40-50 zone this year and turned back up in March. Momentum favors the bulls as long as RSI holds 40. Chart 5 shows the 10-YR Treasury Yield forming a higher low in February-March and breaking above the February highs. The indicator window shows Aroon Up breaking above Aroon Down and hitting 100 to turn bullish.

IEF FORGES OUTSIDE REVERSAL WEEK... The 7-10 YR T-Bond ETF (IEF) started the week strong because the markets were on the defensive with the situation in Ukraine. This strong start did not last long as Treasuries sold off the rest of the week and IEF formed a bearish engulfing. Chart 6 shows IEF moving above last week's high and the moving below last week's low to form an outside reversal week. Overall, the advance since September looks like a rising wedge within a bigger downtrend. This bearish engulfing or outside reversal is the first sign that the wedge has peaked. A break below wedge support would signal a continuation of the prior decline. Chart 7 shows the 20+ YR T-Bond ETF (TLT) forming a bearish engulfing this week as well. Further weakness in Treasuries would be positive for stocks because TLT has been negatively correlated with SPY for most of the last three years.

KEY BREADTH INDICATORS CONFIRM STOCK MARKET STRENGTH... The S&P 1500 AD Line ($SUPADP), AD Volume Line ($SUPUDP) and High-Low Line ($SUPHLP) all hit new highs to confirm strength in the major stock indices. Strong breadth means the market is firing on all cylinders. Even though this short-term advance is getting even more extended, I do not see any warnings signs because there are no bearish divergences. There are fewer new highs this year than in October and December, but new highs still outnumber new lows and this is really the only metric that counts. Less strength does not translate into actual weakness.

SERVICES SLIP, BUT MANUFACTURING HOLDS STRONG... The services side of the economy slipped in February as the ISM Services Index fell below 52 for the first time since early 2010. Chart 11 shows the indicator remaining above 50 and still favoring economic expansion, but needs an uptick in March or April for the services economy to gain more traction. Chart 12 shows the business activity index holding up much better because it came in at 54.6 for February. This leading indicator is still strong and encouraging.

The manufacturing side of the economy picked back up in February as the ISM Manufacturing Index and ISM Manufacturing New Orders Index ticked higher. Charts 12 and 13 show both comfortably above 50 and this favors economic expansion.

VEHICLE SALES HOLD KEY LEVEL... Light Weight Vehicle Sales ticked up a fraction and remain above 15 million units. Even though sales growth flattened over the last 12 months, the big trend remains up and I would not become concerned unless sales dip below 15 million, which would trigger a 14 month low.

JOBS PICTURE REMAINS POSITIVE FOR STOCKS... Initial Jobless Claims fell to their lowest level of the year this week (323,000). It is just one week and chart 16 shows the four week average remaining between 320,000 to 360,000. Even though the decline slowed, we have not seen an uptick and this indicator is still positive for the stock market. Non-farm payrolls for February grew 175,000, and the numbers for December-January were revised higher. Even though 200,000 would show more strength in the labor market, chart 17 shows the 12-month average at 171,000 and this is enough job creation to maintain a slow and steady improvement in the labor market. Chart 18 shows the economic table for March.