-- SEMIS POWER TECH SECTOR, THREE SEMI STOCKS WITH FRESH BREAKOUTS, THROWBACK ZONE FOR QQQ, SMALL-CAPS STRUGGLE, XLU BREAKS DOWN AS YIELDS RISE, TLT GETS COLD FEET --
SEMICONDUCTOR ETF LEADS WITH NEW HIGH ... Link for today's video. Chart 1 shows the Semiconductor SPDR (XSD) surging over 1.5% and hitting yet another new high. The ETF surged in the second half of October and then embarked on a steady advance defined by the Raff Regression Channel. XSD is nearing the upper line and getting extended, but shows no signs of weakness or selling pressure. The mid February consolidation marks first support in the 85 area. Broken resistance and the lower line of the channel mark key support in the 80 area. The indicator window shows the price relative (XSD:SPY ratio) bottoming in mid October and hitting a new high as well. XSD has been outperforming for around five months and this group has powered the technology sector (sans Apple). Chart 2 shows the Equal-weight Technology ETF (RYT) hitting a new high today.
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Chart 1
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Chart 2
THREE SEMICONDUCTOR STOCKS WITH FRESH BREAKOUTS... FreeScale Semiconductor (FSL) and NXP Semiconductor (NXPI) are leading the semiconductor group today with double-digit gains because NXP made a takeover bid for Freescale today. These two are leading for percentage gains, but over a dozen other stocks in the Semiconductor SPDR are hitting new highs today. Strength in this group, therefore, is broad based. Some of these stocks are indeed extended and ripe for corrections, but chartists should keep them on their WatchLists for pullbacks or bullish continuation patterns in the coming weeks. For now, there are three stocks with fresh breakouts. Chart 3 shows Cypress (CY) with a surge to new highs, a consolidation in November-December and breakout today.
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Chart 3
Chart 4 shows Atmel (ATML) moving above its January high today. Notice that the 50-day moving average crossed above the 200-day moving average last week.
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Chart 4
Chart 5 shows Semtech (SMTC) breaking out of a large trading range and hitting 52-week highs. Broken resistance turns first support to watch on a throwback.
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Chart 5
THROWBACK ZONE FOR QQQ... Chart 6 shows the Nasdaq 100 ETF (QQQ) breaking the wedge trend line on February 11th and moving to new highs in the second half of February. Even though the trend here is clearly up, QQQ is up around 9% from its early February low and getting short-term overbought. Resistance from the December-January highs turns into the first support zone to watch on a throwback. After a breakout, a throwback occurs when prices return to the breakout zone and find support. Throwbacks offer a second chance to partake in the trend and a better reward-to-risk ratio for new positions.
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Chart 6
RUSSELL 2000 AND S&P SMALLCAP ETFS HIT NEW HIGHS... Chart 7 shows the Russell 2000 iShares (IWM) breaking out of a diamond or symmetrical triangle in early February and hitting new highs the past two weeks. Since hitting 122 on February 17th, the advance has been rather incremental. Basically, IWM is up less than 2% over the last nine trading days. Even though the going is tough, the going is still mostly up and this is net positive. Broken resistance in the 119 area turns into the first support area to watch on a throwback. Because IWM has some 2000 moving parts (stocks), I am going to widen this zone to the 118-120 area. The indicator window shows IWM relative to the S&P 100 ETF (OEF). Small-caps have been outperforming large-caps since mid October, but relative performance flattened as the ratio stalled in February. A break below 1.30 would signal a return to relative weakness in IWM. Chart 8 shows the S&P SmallCap iShares (IJR) with similar characteristics.
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Chart 7
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Chart 8
XLU BREAKS FLAG TREND LINE ... I thought the Utilities SPDR (XLU) might bounce because the long-term trend was up and the ETF was trading in a support zone. XLU did bounce, but this bounce proved futile as the ETF resumed its early February decline. Chart 9 shows XLU hitting a new high in late January and then falling around 10%. The ETF firmed in the latter part of February and even bounced last week. This bounce, however, failed as the ETF broke flag support with a sharp decline the last four days. This support break signals a continuation of the prior decline and targets a move to the next support zone in the low 40s. The indicator window shows Aroon Down (red) moving above Aroon Up (green) in early February and staying above Aroon Up. This indicator is bearish until Aroon Up crosses back above Aroon Down and hits 100.
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Chart 9
T-YIELDS WEIGH ON UTILITIES... Chart 10 shows the Equal-weight Utilities ETF (RYU) with a similar pattern. The indicator window shows the 10-YR Treasury Yield ($TNX) moving higher the first half of February, which is when utilities fell sharply. This suggests a negative correlation between the 10-YR T-yield and utilities. It is a big week for Treasuries because there is a slew of economic data on deck. A breakout in the 10-YR Treasury Yield, therefore, would be bearish for utilities. John Murphy pointed out the relationship between utilities, Treasury yields and gold in his Market Message on February 7th. Separately, utilities may also be under pressure from clean-energy competition (sun, wind, etc...).
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Chart 10
TREASURIES FALL BACK AFTER SURGE... Treasury bonds surged off support last week and then fell back over the last three days. The surge off support is still valid, but I will be watching the 20+ YR T-Bond ETF (TLT) and 7-10 YR T-Bond ETF (IEF) closely. Chart 11 shows TLT bouncing off broken resistance and reversing in the 50-62% retracement zone. This bounce provides the first support level to watch. A break below 126 would be bearish for TLT. Note that the 20-day EMA has been above the 50-day EMA since January 2014. Talk about a stable trend! Carl Swenlin and Erin Heim of our DecisionPoint section have been using this moving average pair in their analysis and it has kept them on the right side of the trend for a long time now. These two moving averages would trigger a bearish signal if the 20-day EMA moves below the 50-day EMA. They are close together and it would not take much to trigger a bearish cross. Chart 12 shows the 7-10 YR T-Bond ETF (IEF) with similar characteristics.
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Chart 11
