QQQ CHALLENGES RESISTANCE AS IWM SURGES OFF SUPPORT -- REGIONAL BANK SPDR PLOWS THROUGH TREND LINE -- INTERNET ETF SURGES TOWARDS TREND LINE RESISTANCE -- BIOTECH ISHARES GETS A BULLISH AROON SIGNAL -- COPPER MINERS ETF FORMS BULLISH REVERSAL PATTERN
QQQ CHALLENGES RESISTANCE AS IWM SURGES OFF SUPPORT... Link for today's video. The market surged on Monday with the Dow Industrials hitting a new high and the S&P 500 challenging its early April high. Despite a new high in the Dow, today's big story may be relative strength in the Russell 2000 ETF (IWM) and Nasdaq 100 ETF (QQQ). These two weighed on the stock market over the last few months and a return to relative strength would be very positive for the market overall. Chart 1 shows the Nasdaq 100 ETF bouncing off the 83-84 area in mid April and then consolidating in the 86-88 area the last few weeks. This consolidation held above the prior low and the ETF is now challenging resistance in the 88 area. A breakout here could open the door to an assault on the early March highs. The indicator window shows the price relative (QQQ:SPY ratio) moving lower from mid February to mid April as QQQ underperforms SPY. The price relative flattened the last few weeks, but remains short of a breakout that would signal a return to relative strength.
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Chart 1
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Chart 2
Chart 2 shows the Russell 2000 ETF (IWM) hitting the top of a support zone and firming the last few weeks. Notice how the ETF dipped below 110 in mid April, late April and early May. The ETF rebounded back above 110 each time and is currently challenging the early May high. A breakout here would be the first sign that buying pressure is increasing and we could then see a resumption of the bigger uptrend. Yes, the bigger trend is up because IWM hit a new high in early March and has yet to break the early February low.
REGIONAL BANK SPDR PLOWS THROUGH TREND LINE... According to the iShares website, financial services (24.88%) is the largest sector in the Russell 2000 ETF. This leaves the remaining 75% to be divided up among the other eight sectors. Chartists looking for clues on the Russell 2000 should turn to financial services first. The big banks are not part of the Russell 2000 so the performance of the market-cap weighted Finance SPDR is not important. More likely, regional banks and other smaller finance-related companies are the driving forces. With this in mind, I singled out the Regional Bank SPDR (KRE) and the SmallCap Financials ETF (PSCF) for clues on the Russell 2000 ETF.
Chart 3
Chart 4 shows KRE firming in the 38 area last week and breaking above the wedge trend line today. Even though the decline from late March to early May was deep, KRE has so far held above the early February low. A higher low is required to keep the long-term uptrend alive. The trend line break is the first positive and the Percentage Price Oscillator (PPO) is crossing above its signal line. The early May high marks next resistance just above 39 and a move above this level would complete the wedge reversal.
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Chart 4
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Chart 5
Chart 5 shows the SmallCap Financials ETF hitting a new high in early April and correcting with a pullback the last several weeks. The pullback has so far held above the early February low and the ETF is showing signs of resilience with a trend line break on Monday. The indicator window shows the Percentage Price Oscillator moving above its signal line as momentum improves.
INTERNET ETF SURGES TOWARDS TREND LINE RESISTANCE... Weakness in internet-related stocks and biotechs weighed on the Nasdaq over the last few months so I will focus on these groups for signs that the risk appetite is returning to the market. Upside breakouts would suggest that the Nasdaq is turning up and the appetite for risk is increasing. Led by Google and Facebook, chart 6 shows the Internet ETF (FDN) falling over 20% from early March to early May. This decline may seem drastic, but keep in mind that the ETF was up over 80% from November 2012 to March 2014. This 21% correction retraced 38 to 50% of the 80+ percent advance. FDN is getting a bounce, but remains short of a breakout that would reverse the ten week downtrend. A trend line break would be the first step and a break above the early May high at 56 would be the second step.
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Chart 6
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Chart 7
Chart 7 shows the Global Social Media ETF (SOCL) falling around 30% from early March to early May. The global nature of this ETF puts an extra twist on performance. Relative weakness in this ETF can be blamed on a 25% decline in Tencent (TCEHY), a 45% decline in Sina.com (SINA) and a 45% decline in Yandex (YNDX). Tencent and Sina.com are Chinese portals. Yandex is the Russian portal.
BIOTECH ISHARES GETS A BULLISH AROON CROSS... The Biotech iShares (IBB) is also showing signs of life with a bounce in mid April and a bullish Aroon signal this month. Chart 8 shows IBB falling around 25% from late February to mid April. The ETF got a bounce off its support zone in mid April and then consolidated the last three weeks. Notice how the consolidation lows held above the April lows. Buying interest is appearing as the ETF surged above 230 in early trading on Monday. A follow thru break above red resistance zone would be bullish. The indicator window shows Aroon Up crossing above Aroon Down. This is the first step of a three step signal. The second step would be a break above 50 (the midpoint) and the final step would be a surge to 100.
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Chart 8
COPPER MINERS ETF FORMS BULLISH REVERSAL PATTERN... Led by strength in mining and steel stocks, the Materials SPDR hit a new high intraday to extend its overall uptrend. Chart 9 shows the Copper Miners ETF (COPX) forming a potential double bottom over the last five months. Notice the two lows in the 8.5-8.6 area and the resistance zone in the 9.8 area. A break above the resistance zone would confirm this bullish reversal pattern and target a move to the 11 area. Within this double bottom, the ETF surged off support in mid March and consolidated with a triangle into May. Today's big move broke triangle resistance and opened the door to a resistance challenge.
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Chart 9
STEEL ETF HOLDS A KEY BREAKOUT... Chart 10 shows the Steel ETF (SLX) breaking wedge resistance in early May and surging above 47 today. I showed this chart in the Market Message on April 29th as the stock tested the breakout zone in the 46 area. This breakout zone turned into support and held with the surge over the last seven days. Longer term, notice that the bigger wedge breakout is also holding. The big wedge breakout and the little wedge breakout open the door to the late December highs around 50. The indicator window shows RSI finding support in the 40-50 area and turning up sharply today. Note that the 40-80 zone define the bull range for momentum. A break below 40 would provide the first sign of a failed breakout on the price chart and potential a trend reversal.
