-- QQQ BREAKOUT, SPY TARGETS, BREADTH LINES CONFIRM, SECTOR AD LINES, T-YIELDS HIT INFLECTION, TLT SURGES OFF FIB ZONE, YIELD CURVE, UTILITIES FIRM AND REITS BREAK --

WEBINAR CHARTS... Welcome to the Fed edition of the Market Message. No, I am not going to dissect Fed speak and analyze every word from the testimony of Fed Chair Janet Yellen. Instead, I am going to analyze the charts, which contain all available information. Before hitting Treasuries, I will start with the broader stock market. First we will look at the breakout in QQQ and provide some upside targets for the S&P 500 SPDR. Second, one breadth indicator is lagging, but the majority are confirming recent highs. Third, I will then look at the AD Lines for the sector SPDRs. After this stock market overview, we will then turn our attention to Treasury yields, the yield curve, Treasury bond ETFs, utilities and REITs. Today's Webinar also includes a live demo on how to add the stocks of a specific industry group to a ChartList. Click here for the Webinar

QQQ BREAKOUT AND SPY TARGET... Chart 1 shows the S&P 500 SPDR (SPY) with a symmetrical triangle target in green and a measured move target in blue. Chart 2 shows Nasdaq 100 ETF (QQQ) with broken resistance marking first support in the 105-106 area. The December-January lows mark long-term support around 100.

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Chart 1

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Chart 2

4 OF 5 BREADTH LINES CONFIRM... When the major stock indices move to new highs, the first thing I do is check the AD Lines for confirmation. Corresponding new highs in the AD Lines reflect strong breadth that supports the new highs in the underlying indices. Chart 3 shows the S&P 500, S&P MidCap 400, S&P Small-Cap 600, Nasdaq 100 and their corresponding AD Lines. The AD Lines are solid blue and the index lines are dashed pink. All five indices recorded new highs in February and four of the five AD Lines confirmed with new highs. The S&P Small-Cap 600 AD Line is the only AD Line that did not hit a new high. Small-cap breadth is not as strong as the underlying index. I would not view this as negative just yet because the AD Line is very close to a new high. In addition, four of the five AD Lines did hit new highs and the majority rules here.

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Chart 3

OFFENSIVE SECTOR AD LINES SHOW BROAD STRENGTH... Chart 4 shows the four offensive sectors with pink dashed lines and their AD Lines with solid blue lines. First, note that three of the four AD Lines hit new highs and this shows broad strength in each sector. The Consumer Discretionary SPDR AD Line has yet to hit a new high, but is very close to its late December high. Second, note that three of the four sector SDPRs hit new highs. The Finance SPDR (XLF) did not hit a new high and shows relative weakness this year. The blame goes to the big banks that dominate this sector SPDR (C, BAC, JPM, GS). These four remain below their December highs.

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Chart 4

ENERGY AND UTILITY AD LINES DEVIATE... Chart 5 shows the remaining five sector SPDRs and their AD Lines. Note that the HealthCare SPDR (XLV), Consumer Staples SPDR (XLP) and Materials SPDR (XLB) hit new highs and their AD Lines confirmed with new highs. This means six of the nine sector AD Lines hit new highs this month and this shows broad strength in the stock market. The XLU AD Line hit a new high in January and fell back in February. I think the long-term trend is still up for this breadth indicator and a break above last week's high would be positive. The XLE AD Line hit a new low in January and bounced this month. I think the bigger trend is down here and will ultimately prevail. A move below the mid February low would reverse the five week uptrend in the XLE AD Line.

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Chart 5

10-YR TREASURY YIELD HITS INFLECTION AREA... Fed Chair Janet Yellen is testifying before Congress for two days and rate-sensitive groups will hang on every word (or lack there of). These days the market seems to be waiting for a particular word (patient) to disappear from the Fed vocabulary. Full Disclosure: I do not know if Yellen will come across as hawkish or dovish. My best resource is the chart for the 10-year Treasury Yield ($UST10Y), which is the benchmark rate. Chart 6 shows the 10-year Treasury Yield at a potential inflection point. First, note that the bigger trend is down. There was a steady downtrend from January to September 2014 and this downtrend accelerated from mid September. Notice that the second Raff Regression Channel is steeper. After a spike to 1.7%, the 10-yr Yield surged to the 2.1% area in mid February and stalled. I realize that the 10-yr Yield is not "traded" per se, but it is based on a tradable instrument (10-yr US T-Note) and we can use technical analysis. The technicals point to a reversal zone and we could see a continuation of the bigger downtrend. First, the upper trend line of the Raff Regression Channel ends in the 2.15% area. Second, this area marks a 50% retracement of the prior decline. Third, broken supports turn into a resistance zone in the 2.1-2.15 area.

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Chart 6

YIELD CURVE REMAINS POSITIVE... Chart 7 shows four different Treasury yields on one chart for easy comparison. The 20-year Treasury Yield ($UST20Y) is around 2.44%, the 10-year Treasury Yield ($UST10Y) is around 2.06%, the 5-year Treasury Yield ($UST5Y) is around 1.56% and the 2-year Treasury Yield ($UST2Y) is near .64%. Even though the spread between the 10-yr and 2-yr has narrowed, the 10-yr yield is still much higher than the 2-yr yield and this means the yield curve is positively sloped, which is positive for stocks and the economy. The trouble starts when the 2-yr yield exceeds the 5-yr yield and even the 10-yr yield. This is what creates an inverted yield curve. Chart 8 shows the Yield Curve (10YR - 2YR) with the red zones marking periods of inversion.

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Chart 7

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Chart 8

2-YR YIELD SUPPORTS BULL MARKET IN STOCKS... As far as the stock market is concerned, the real action is in the 2-year Treasury Yield ($UST2Y), which has been rising for almost two years now. Chart 9 shows the 2-yr Yield over the last four years. The yield plunged in spring-summer 2011 during the European sovereign debt crisis and bottomed in September 2011. After basing for some eighteen months, the yield started working its way higher in May 2013. It has been a volatile advance, but the overall trend is up and I think this is net positive for the stock market. The rising 2-yr yield means money is moving out of short-term Treasuries, the economy is improving and the labor market is ok. The S&P 500 is up over 30% from May 2014 until February 2015. The 2-year Treasury Yield rose from .20% to .65% during this timeframe and has a ways to go before reaching its pre-crisis levels.

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Chart 9

TREASURY BOND ETFS FIRM IN INFLECTION ZONES... If the 10-year T-Yield is in an inflection zone, then the 7-10 YR T-Bond ETF (IEF) and 20+ YR T-Bond ETF (TLT) should be in inflection zones too. And they are. Chart 10 shows IEF firming in a Fibonacci cluster zone. Note that the Fibonacci Retracements Tools extend from the September low to the January high and from the November low to the January high. I marked the Fibonacci cluster zones in gray and IEF is firming in this zone. As noted above, the long-term trend for the 10-yr yield is down and this means the long-term trend for IEF is up. As such, this zone should be watched for a potential reversal and a break above last week's highs would act as the catalyst. This breakout is happening today. Chart 11 shows TLT with a similar setup.

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Chart 10

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Chart 11

UTILITIES ETFS FIRM IN SUPPORT ZONES... Utilities stocks were hit hard when the 10-year T-Yield surged this month and the 7-10 YR T-Bond ETF plunged. There is clearly a positive correlation with bonds and a negative correlation with yields. As one of the most rate-sensitive groups right now, the utilities ETFs will likely be affected by the next move in Treasuries. Upside breakouts in TLT and IEF would be bullish. Downside continuations would be bearish. Chart 12 shows the Equal-weight Utilities ETF (RYU) and the Utilities SPDR (XLU) firming in support zones. Note that both hit new highs in January and should be considered in long-term uptrends. This is why I am watching this pullback closely.

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Chart 12

REIT ETF BREAKS FLAG LINE... Chart 13 shows the REIT iShares (IYR) falling along with the Treasury bond ETFs in February. IYR formed a small rising flag in mid February and broke the lower trend line last week. IYR shows relative weakness and could be heading for the next support zone around 77. Look for a break above 81 to reverse the four week slide.

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Chart 13

EXTRAS... Additional Charts: XLF, RYF, PSCF, PSCD and PSCH.
Q&A Charts: AMZN, CP, GDX, GRPO, HFC, HEDJ, SPLK and VIV
Live Demo: Adding stocks from an industry group to a ChartList.

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