QQQ AND IWM BOUNCE OFF SUPPORT ZONES -- REGIONAL BANK SPDR HITS A REVERSAL ZONE -- RETAIL SPDR FIRMS AT KEY RETRACEMENT -- HIGH-LOW PERCENT TRIGGERS A BULLISH SIGNAL -- 10-YR TREASURY YIELD SURGES OFF SUPPORT
QQQ AND IWM BOUNCE OFF SUPPORT ZONES... Link for today's video. The Nasdaq 100 ETF (QQQ) and Russell 2000 ETF (IWM) started underperforming the S&P 500 SPDR (SPY) in March and led the market lower over the last three-to-four weeks. While relative weakness in large tech stocks and small caps is a concern, QQQ and IWM remain in long-term uptrends and both bounced off support the last few days. I will be watching these two closely for signs that their corrections are ending and the long-term uptrends are resuming. Chart 1 shows QQQ hitting a new high in early March and then falling around 8.8% from high to low. An 8.8% decline after a 33.6% advance is still pretty modest. QQQ got a bounce off the December-February lows to affirm support in the 83-84 area for the third time in five months. Despite this bounce, the six week trend remains down because QQQ is below its last reaction high (88) and the Vortex Indicators have yet to turn bullish.
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Chart 1
The indicator window shows -VI moving above 1.1 in late March to turn bearish. The Vortex Indicators are oscillators that measure positive (+VI) and negative (-VI) trend movement. There is an upward bias when +VI is above -VI and a downward bias when -VI is above +VI. I am using a 14-day look-back period to capture the short-to-intermediate term trend bias. Even though simply crosses can be used for signals, I added a threshold to reduce whipsaws. In this example, an upward bias is present when +VI crosses above -VI and +VI exceeds 1.1. A downward bias is present when -VI crosses above +VI and -VI exceeds 1.1. The Vortex Indicators currently have a downward bias because -VI is above +VI and -VI exceeded 1.1 in late March. +VI needs to move above -VI and exceed 1.1 to reverse this bias. Chart 2 shows IWM with similar characteristics.
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Chart 2
REGIONAL BANK SPDR HITS REVERSAL ZONE... The Regional Bank SPDR (KRE) led the market lower from late March to mid April, but this decline still looks like a correction within a bigger uptrend and support is at hand. Uptrends rarely take shape as straight lines. Instead, uptrends often zigzag higher with a series of rising peaks and rising troughs (higher highs and higher lows). As traders and investors, the challenge is to identify the end of the pullback (trough low) and the resumption of the uptrend. Chart 3 shows KRE within a zigzag uptrend over the last eight months. After hitting a new high in late March, the ETF pulled back rather sharply with a decline to around 39. This is an interesting juncture because the decline retraced around 62% of the prior advance and returned to broken resistance. Yes, this is a classic support zone that could foreshadow a reversal. Notice how KRE hit this zone last Monday, firmed for three days and then surged off this support zone. This little surge provides the first clue that the bigger uptrend may be resuming. Chart 4 shows XLF getting a bounce off a similar support zone.
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Chart 3
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Chart 4
RETAIL SPDR FIRMS AT KEY RETRACEMENT ... The Retail SPDR (XRT) is firming near the 62% retracement and chartists should watch this ETF closely for clues on the market as a whole. While I am concerned with relative weakness since November, the long-term trend for XRT remains up and a revival in this group would be most positive for the market overall. The retail group is important to the consumer discretionary sector and the consumer discretionary sector is important to the broader market. In addition, note that retail spending accounts for some two thirds of GDP, which makes it a key driver for economic activity. Chart 5 shows XRT forming a lower high in March and falling to the 81 area in mid April. Notice that the 81 area marks a 62% retracement of the prior advance. In addition, chart 6 shows weekly bars and the trend line zone extends into the 81 area. The 62% retracement and trend line support zone make this a potential reversal zone to watch in the coming days.
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Chart 5
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Chart 6
HIGH-LOW PERCENT TRIGGERS A BULLISH SIGNAL... High-Low Percent ($SUPHLP) triggered a bullish signal when it fell into negative territory and then surged above +2%. Similar dip-surge sequences marked short-to-intermediate term lows over the last twelve months. Chart 7 shows the S&P 1500 and the High-Low Line in the main window, and High-Low Percent in the indicator window. First, notice that the High-Low Line has been above its 10-day EMA since November 2012. This tells us that dips in High-Low Percent did not last long as were not deep enough to push the High-Low Line below its 10-day EMA.
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Chart 7
Looking back at the last twelve months, we can identify three different signals: the single dip, the double dip and the almost negative dip. First, High-Low Percent dipped into negative territory once and then surged above +2% in late June and mid December. Second, High-Low Percent did a double dip in August-September and January-February. Third, High-Low Percent almost dipped below the zero line in October and then surged above +2%. As the chart now stands, I see a bullish signal with the brief dip into negative territory and surge above +2%. There is always a chance for another dip into negative territory, which would suggest a double dip signal at work. Watch for a move back below +2% for the first sign of a double dip.
10-YR TREASURY YIELD SURGES OFF SUPPORT ... Strength in Treasuries weighed on stocks over the last two months, but Treasuries reversed course on Friday and continued strength could lift stocks. I am going to use the 10-YR Treasury Yield ($TNX) and the 30-YR Treasury Yield ($TYX) to analyze Treasuries. Keep in mind that yields and Treasury prices move in opposite directions. This means yields rise when Treasury prices fall, and visa versa. Chart 8 shows the 10-YR Treasury Yield surging above 24 (2.4%) and then consolidating the last nine-to-ten months. I view this as a consolidation within an uptrend and expect a continuation higher at some point. The indicator window shows RSI trading within the 40-80 zone for over a year. Long-term momentum favors the bulls as long as RSI holds this zone.
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Chart 8
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Chart 9
Chart 9 shows the consolidation in detail. First, notice that there is a slight upside bias as $TNX forged a higher high in early January and held above the October low the last few months. Second, notice that the 10-YR Treasury Yield has substantial support in the 26 area. The surge off this support zone is the first clue that the bigger uptrend is poised to resume. A break above the March-April highs would target a move above 3% and this would be most negative for Treasuries. A breakout in yields would be positive for stocks. Chart 10 shows the 30-YR Treasury Yield with a falling wedge this year. The long-term trend is up and a breakout at 36.6 would signal a continuation higher.
