DOW INDUSTRIALS AND TRANSPORTS CHALLENGE RESISTANCE -- MMM, TRV, CNW AND KSU GO FOR BREAKOUTS -- GLOBAL AUTO ETF SURGES TO NEW HIGH -- FIAT HITS NEW HIGH, FORD CONSOLIDATES AND GM TESTS SUPPORT -- FINANCE ETF FORMS FLAG AS BANKING SPDR BOUNCES OFF SUPPORT
DOW INDUSTRIALS AND TRANSPORTS CHALLENGE RESISTANCE ... Link for today's video. With a surge the last two days, the Dow Industrials and Dow Transports are challenging consolidation resistance and poised for breakouts. Chart 1 shows the Dow surging above 16000 in February and then moving into a consolidation pattern. The Dow established support in the 16000 area with two bounces this month, and is currently challenging consolidation resistance around 16500 now. A breakout here would signal a continuation of the February advance and project a move to new highs. The chart looks bullish right now and chartists can watch support at 16000 for the first signs of weakness. Failure to take out the January high would forge a lower high and a support break would then argue for a continuation of the January decline. The indicator window shows the Vortex oscillators trading in a narrow range the last few weeks. The first to move above 1.1 will break this range and trigger the next signal.
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Chart 1
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Chart 2
Chart 2 shows the Dow Transports edging above its January high earlier this month and then forming a bull flag the last few weeks. Bull flags slope down and represent a correction after an advance. A break above flag resistance would signal a continuation higher. Notice that the Average bounced off broken resistance at 7400 the last two days. This strong surge off support increases the chances of a breakout. The indicator window shows the Commodity Channel Index (CCI) becoming short-term oversold (below -100) last week and moving back into positive territory this week. Short-term momentum is also improving.
MMM, TRV, CNW AND KSU GO FOR BREAKOUTS ... The Dow Industrials and Dow Transports are price-weighted averages, which means the stocks with the highest prices have the most influence. A $100 stock (Caterpillar) will have much more influence than a $22 stock (Cisco). Keep this in mind when analyzing the components and looking for the key drivers. Chart 3 shows Dow component Travellers (TRV) surging to 84 in mid February and then forming a small ascending triangle the last six weeks. With a gap up today, the stock is challenging triangle resistance and a break out would signal a continuation of the February surge. Chart 4 shows Dow component 3M (MMM) breaking above its late February high.
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Chart 3
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Chart 4
The next two charts feature components of the Dow Transports. Chart 5 shows Conway (CNW), a trucking and logistics company, surging in early March and breaking resistance in the 39-40 area. The stock consolidated with a falling flag and surged off broken resistance over the last two days. CNW is making a breakout bid that would signal a continuation of the prior advance. Chart 6 shows Kansas City Southern (KSU), a rail freight company, with a surge in March and pennant over the last few weeks. The stock held the breakout with two tests and then surged above pennant resistance today.
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Chart 5
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Chart 6
GLOBAL AUTO ETF SURGES TO NEW HIGH... The Global Auto ETF (CARZ) was strong last year, but moved into a holding pattern over the last several months. With a surge today, this ETF broke consolidation resistance to signal a continuation of the bigger uptrend. Chart 7 shows CARZ with a big move from July 2012 to October 2013. The ETF recorded new highs in October 2013 and then moved into a consolidation over the last six months. A consolidation within an uptrend is typically bullish and today's breakout signals a continuation higher. Note that this ETF is dominated by foreign automakers such as Daimler (DDAIF), Fiat (FIATY) and Toyota (TM). GM and Ford are also part of the ETF, but they account for a relatively small percentage.
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Chart 7
FIAT HITS NEW HIGH, FORD CONSOLIDATES AND GM TESTS SUPPORT... Chart 8 shows Fiat (FIATY), which owns Chrysler, breaking pennant resistance and forging a fresh 52-week high today. This is the strongest auto stock right now. Chart 9 shows Ford (F) within a downtrend the last six months. The stock got a bounce in February and then consolidated in March with a pennant. A move above the March highs would break pennant resistance, exceed the trend line and reverse the downtrend. Chart 10 shows General Motors (GM), which has had some bad news of late, testing support in the 33-34 area for the fourth time in eight months. The stock surged just after St Patrick's day and then fell back with a falling flag of sorts. Watch for a break above 35.1 for the first sign of another bounce off support.
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Chart 8
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Chart 9
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Chart 10
FINANCE ETF FORMS FLAG AS BANKING SPDR BOUNCES OFF SUPPORT... Banking stocks caught a bid over the last two days. Chart 11 shows the Equal-weight Finance ETF (RYF) breaking out to new highs in early March and then consolidating with a flag-type pattern. The breakout is holding as broken resistance turns support in the 30.5 area. A flag after an advance is a bullish continuation pattern. A breakout, therefore, would signal a continuation of the prior advance (37.2 to 40.5). The indicator window shows the price relative (RYF:SPY ratio) turning up over the last few weeks as the finance sector starts to outperform the broader market again. Chart 12 shows the Regional Bank SPDR (KRE) breaking out in mid March and falling back to the breakout zone last week. This looks like a classic "throw back" to test the breakout. With today's surge off support, it looks like the breakout is going to hold.
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Chart 11
