MACD MAKES A KEY CROSS FOR THE AUTO INDEX -- FORD LEADS GM WITH BREAKOUT -- HONDA CONFIRMS PIERCING PATTERN AS TOYOTA BREAKS TREND LINE -- 10-YR TREASURY YIELD SPRINGS BACK ABOVE KEY LEVEL -- FINANCE SPDR BREAKS ABOVE RESISTANCE
MACD MAKES A KEY CROSS FOR THE AUTO INDEX... Link for today's video. I featured the DJ US Auto Index on May 20th as a large consolidation formed and the MACD line flattened. Auto stocks are getting a boost today after Chrysler, which is owned by Fiat (FIATY), reported a double-digit jump in May sales. Ford reported a 3% increase, while GM sales rose 13%. Note that the Department of Commerce will report motor vehicles sales for May at 2PM today. Chart 1 shows the DJ US Auto Index ($DJUSAU) doubling from the July 2012 low to the September 2013 high. A long consolidation followed this big advance as the index traded flat for the next nine months. Overall, the pattern looks like a triangle and a break to the upside would signal a continuation higher. The indicator window shows the MACD Histogram turning positive for the first time since September. This means the MACD line moved above its signal line, which is the nine-period exponential moving average of MACD. A bullish signal line crossover on the weekly chart indicates that momentum is turning up in this key index.
(click to view a live version of this chart)
Chart 1
FORD LEADS GM WITH BREAKOUT ... Chart 2 shows Ford (F) leading the auto group with a breakout in late March and a move above the April high. Overall, Ford surged from July 2012 to October 2013 and then corrected with a falling channel. The channel breakout ended the correction and signaled a continuation higher. Ford stalled after the breakout with a trading range in April, but broke out of this range with a close above the April high last week. The indicator window shows the MACD line moving into positive territory and momentum is clearly bullish.
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
Chart 3 shows General Motors (GM) advancing over 100% from the July 2012 low to the December 2013 high. The stock then embarked on a correction with a falling wedge this year. A stock is certainly entitled to a pullback after a strong advance. GM firmed in the 32 area with a weekly harami and tried to break the wedge trend line, but ended up stalling over the last six to seven weeks. Frankly, GM has held up rather well considering the negative news over the last several weeks (ignition switch recall). The March-May highs mark resistance at 36 and a break above this level would be quite bullish for the stock. The indicator window shows the weekly MACD line flattening and starting to turn up.
HONDA CONFIRMS PIERCING PATTERN AS TOYOTA BREAKS TREND LINE... Auto stocks across the board are strengthening with breakouts in Honda (HMC) and Toyota (TM). Chart 4 shows Honda giving back over half of its prior advance (Nov-12 to Nov-13) with a decline back to the 33 area. The stock formed a piercing pattern in late April and followed through with a break above resistance in mid May. The indicator window shows MACD turning up and moving above its signal line.
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
Chart 5 shows Toyota retracing around 50% of the prior advance and then forming a harami in the 105 area. The stock then edged higher and broke out with a surge above 110 last week. The MACD line also turned up and broke above its signal line.
10-YR TREASURY YIELD SPRINGS BACK ABOVE KEY LEVEL... It is a big week for Treasury bonds because the first week of the month is always loaded with key economic reports and employment numbers. At the charts now stand, the 20+ YR T-Bond ETF (TLT) remains in an immediate uptrend and the 10-YR Treasury Yield ($TNX) in an immediate downtrend. However, chart 6 shows the 10-YR Treasury Yield closing below 2.5% last week and surging back above 2.5% this week. Perhaps a bear trap is springing here. Note that the 2.5% area held in July 2013 and October 2013, and the overall picture shows a possible trading range from 2.5% to 3%. The blue trend line and red resistance line define the immediate downtrend. A break above these would reverse this downtrend and argue for a move to the top of the trading range. The indicator window shows RSI hitting the bottom of its bull zone (40-80).
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
Chart 7 shows the 5-year Treasury Yield ($FVX) firming in the 1.5% area the prior two weeks and surging above 1.6% this week. Notice that higher lows formed this year and a large triangle formed over the last nine months. This looks like a big bullish continuation pattern and a break above 1.8% would signal a continuation of the prior advance (.7% to 1.8%). Keep in mind that Treasury yields and bonds move in opposite directions. This means a decline in Treasury bonds corresponds to a rise in yields. The bond market is quite sensitive to the economic and employment reports. Therefore, positive news this week would trigger selling pressure in the bond market.
FINANCE SPDR BREAKS ABOVE RESISTANCE... I noted strength in the Regional Bank SPDR (KRE) in Monday's Market Message and KRE is moving higher again on Tuesday. Chartists interested in financials should watch Treasury yields because rising rates are positive for lending margins at banks. Chart 8 shows the Finance SPDR (XLF) perking up with a break above resistance from three peaks (late April, early May and mid May). Also notice that the bigger trend for XLF is up because the ETF hit a new 52-week high in mid March. The lows extending from late April can be used to mark key support in the 21.50 area. The indicator window shows the XLF AD Line ($XLFADP) hitting a new high this week. A new high in this key breadth indicator points to broad strength within the finance sector. Chart 9 shows the Equal-weight Finance ETF (RYF) confirming broad strength with a new high this week. The sector may be underperforming the broader market (SPY), but it is not weak on an absolute basis and the price chart is in a clear uptrend.
(click to view a live version of this chart)
Chart 8
(click to view a live version of this chart)
Chart 9
CHARTING BANK OF AMERICA, CITIGROUP AND MORGAN STANLEY... Chart 10 shows Bank of America (BAC) taking a pretty big hit from mid March to mid May, but this decline still looks like a correction within a bigger uptrend. Notice that BAC surged from 7 to 18 without any real pullbacks. The current decline extended to a consolidation zone in the 14-15 area. This zone marks support and there are early signs that it could hold. Notice that the stock gapped up last week and this gap is holding so far. Also notice how the Commodity Channel Index (CCI) became way oversold and moved back above -100.
(click to view a live version of this chart)
Chart 10
Chart 11 shows Citigroup (C) hitting a new high at the beginning of the year and then falling to the June 2013 low a few weeks later. Despite this sharp decline, the stock remains within a long consolidation, which formed after a big advance. A consolidation after an advance is typically bullish. Citigroup is especially interesting because it is firming near support with a rather tight range over the last eight weeks. A break above the April-May highs would provide the first sign that buying pressure is picking up.
(click to view a live version of this chart)
Chart 11
Chart 12 shows Morgan Stanley (MS) bouncing off a big support zone in mid April and forming a higher low in May. This higher low indicates that buying pressure came into the stock at higher prices, which is bullish. MS surged to resistance in late May and then fell back with a small flag the last five days. A move above 31 would break flag resistance, while a move above the resistance zone would set up a challenge to the January-March highs.
