REGIONAL BANK SPDR STALLS AFTER BIG MOVE -- REGIONS AND FNB FORM FLAG PATTERNS -- HOME CONSTRUCTION ISHARES BOUNCES AND HOLDS BREAKOUT -- NEW HOME SALES HIT MULTI-YEAR HIGH -- NETWORKING ISHARES BREAKS FLAG RESISTANCE

REGIONAL BANK SPDR STALLS AFTER BIG MOVE... Link for today's video. Chart 1 shows the Regional Bank SPDR (KRE) holding support near the 37 area and surging above 39 in early June. Overall, the trend on the weekly chart is up because the ETF hit a new high in March and held support near the February low. Moreover, the wedge breakout at 39 is holding and the bulls have the edge as long as this level holds. A break below support would raise the possibility of a head-and-shoulders top. Notice that left shoulder forming with the December-January high and the head forming with the March peak. A break below 39 would form another peak that could mark the right shoulder high. Neckline support would then be set in the 37 area and a break below this level would confirm the pattern. Don't get my bias wrong here. I have a bullish bias, but am looking for setups that could prove this bias wrong.

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Chart 1

The indicator window shows the difference between the 10-YR Treasury Yield ($UST10Y) and the 2-year Treasury Yield ($UST2Y), which is basically the yield curve. This yield curve remains positive overall, but it has become less positive in 2014. Notice how the differential advanced from 1.3% to 2.6% from November 2012 to December 2014. This was positive for regional banks and KRE also advanced rather sharply. The yield curve has since flattened the last six months and KRE is essentially unchanged for the year. A move back towards 2.6 would be positive for regional banks. Chart 2 shows KRE with a flag forming the last three weeks. Watch 40.7 up and 39.2 down.

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Chart 2

REGIONS AND FNB FORM FLAG PATTERNS... Chart 3 shows Regions Financial (RF) with a falling flag. Flags are continuation patterns that form after a sharp move. The pattern bias depends on the direction of the prior move. A flag after a sharp advance is a bullish continuation pattern that represents a rest within the trend. A break above flag resistance confirms the pattern and signals a continuation of the advance. Flags are said to fly at half-mast, which means the length of the prior move can be added to flag support for an upside target. Regions surged 11.4% from mid May to early June and broke above resistance. Broken resistance turned into support as the flag took shape. A move above 10.85 would break flag resistance and signal a continuation higher. Based on the prior move, an 11.4% advance from flag support would extend to the 11.70 area. A decisive break below flag support would negate the pattern and call for a reassessment. Chart 4 shows F.N.B. Corp (FNB) with a flat flag forming over the last three weeks.

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Chart 3

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Chart 4

HOME CONSTRUCTION ISHARES BOUNCES AND HOLDS BREAKOUT... Chart 5 shows the Home Construction iShares (ITB) in an uptrend for over two years. This is important because the recent wedge breakout ended the correction and signaled a continuation of this uptrend. This means a move above the February high is expected. Why was this wedge considered a correction? Because ITB hit a new high in February and the wedge retraced 62% of the prior advance. Both the pattern and the retracement are typical for corrections. The indicator window shows weekly momentum improving with the Percentage Price Oscillator (5,35,5) in positive territory and above its signal line (rising).

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Chart 5

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Chart 6

Chart 6 shows daily bars for a little more detail. The breakout zone in the 23.5-24 area turns into a support zone now. The bounce over the last two weeks affirms support here and this area holds the key. A move below 23.5 would negate the breakouts and call for a reassessment. Also notice that the rising 200-day moving average is in this zone. The indicator window shows ITB relative to SPY using the price relative (ITB:SPY ratio). ITB underperformed in March-April, but the price relative flattened over the last eight weeks. A break above the May highs is needed for ITB to start showing relative strength again.

NEW HOME SALES HIT MULTI-YEAR HIGH... New home sales jumped 18% in May and the total was the highest since the summer of 2008. At 504,000, this total broke above the 2013 highs and forged a new high. Even though this is not a tradable instrument, the multi-year high tells us that new home sales are trending in the right direction for homebuilders. This chart was created with a user-defined index using a StockCharts PRO account.

Chart 7

PALO ALTO AND RIVERBED TECH LEAD NETWORKERS... Chart 8 shows Palo Alto Networks (PANW) breaking wedge resistance with a surge in the second half of May. The stock stalled near resistance from the mid March highs and then hit a new high with a gap above 82.5 today. The stock is short-term overbought on several metrics, but the trend is clear up and a new high is bullish. Chartists can put this one on their watch-list for bullish setups in the future.

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Chart 8

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Chart 9

Chart 9 shows Riverbed Technology (RVBD) surging to a 52-week high in late February and then correcting with a decline to the 18.5 area. A steep wedge formed and the stock broke the wedge trend line, but then moved sideways. After a trading range the last few months, RVBD broke above range resistance with a surge the last three days. Chartists can now mark key support in the 19.5-20 area.

A BIG WEEK FOR ECONOMIC REPORTING... June is almost over and the key economic indicators for the month of May have been released. The table below shows these indicators with the next reporting dates in the first column and some comments in the last column. The green shading is reports that showed improvement. The red shading is for reports that did not show improvement. Even though the ADP jobs number and non-farm payrolls fell month-to-month, they were relatively strong overall and the decline is not a concern. Housing starts and building permits also fell, but remained above the 1 million mark and positive overall.

Chart 10

Several reports are on deck this week, which is always the case at the beginning of the month. ISM Manufacturing and auto-truck sales kick off on Tuesday. ADP employment is Wednesday. ISM Services, jobless claims and non-farm payrolls finish the week on Thursday. The markets are closed on Friday for the fourth of July.