-- A WEAK MARCH FOR STOCKS, XLF STALLS, REGIONAL BANK SPDR CHALLENGES RESISTANCE, THREE REGIONAL BANKS, 10-YR YIELD BREAKS OUT, TLT BREAKS DOWN, ECONOMIC INDICATOR TABLE --

STOCKS WEAKEN, BUT BIGGER UPTRENDS REMAIN... Link for today's video. Stocks weakened over the last few days, but this weakness does not affect the bigger uptrend. First, note that the S&P 500, S&P MidCap 400, S&P Small-Cap 600 and Nasdaq 100 all hit new highs within the last two weeks. These indices broke out of consolidation patterns with big moves in February, and a little backing and filling is perfectly normal after a sharp advance. At this point, I would use the broken resistance zones to mark first support. A breakout is valid as long as the breakout zone holds. A move back below these breakout zones would call for a reassessment. Even though a move back below the breakout zones would be negative, I would not turn bearish on stocks overall because the winter lows mark key support.

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Chart 1

FINANCIALS PERK UP... Stocks were lower in early trading on Friday, but the Finance SPDR (XLF) and the Equal-weight Finance ETF (RYF) were holding up relatively well and bucking the selling pressure. I highlighted XLF last week because it was underperforming and trading below its late December high. This week I am highlighting it because it is outperforming and holding its upswing. Chart 2 shows XLF breaking out with a surge in early February and consolidating above this breakout with a small ascending triangle. These are bullish continuation patterns and a breakout would argue for a move to new highs. As with last week, I am watching support in the 24 area closely and a close below 23.9 would be bearish. Chart 3 shows the Equal-weight Finance ETF (RYF) with a pennant the last three weeks. The ETF is trying to break out today and I am marking support at 44.

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Chart 2

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Chart 3

REGIONAL BANK ETF NEARS RANGE RESISTANCE... Chart 4 shows the Regional Bank SPDR (KRE) surging and attempting a triangle breakout. Overall, KRE is within a large, and volatile, trading range as the ETF bounced between 36 and 41 the last eleven months. With an upswing the last eight weeks, the ETF is once again challenging the upper end of this range. A break below 39 would reverse the eight week upswing. The long-term trend is directionless, but there is clearly a positive correlation with short-term Treasury yields. The indicator window shows the Correlation Coefficient (KRE,$FVX) in positive territory for almost all of the last eleven months. This means that both move in the same direction. The surge in the 5-year Treasury Yield ($FVX) since early February has clearly helped KRE.

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Chart 4

BB&T, KEY CORP AND SUNTRUST... The next four charts highlight some regional banks on the move. Chart 5 shows BB&T (BBT) breaking pennant resistance with a surge above 38.50. The indicator window shows the price relative forming a higher low in early March and turning up this week.

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Chart 5

Chart 6 shows Keycorp (KEY) breaking pennant resistance and surging to a 52-week high. The indicator window shows the price relative breaking a six month trend line in early February and turning back up in March.

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Chart 6

Chart 7 shows Suntrust Banks (STI) hitting a new high in December, pulling back rather sharply in early January and surging back above 40 in early February. This one is not without its volatility. The stock also formed a pennant and broke out with a surge today.

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Chart 7

10-YR TREASURY YIELD BREAKS OUT... The 10-YR Treasury Yield ($TNX) reacted to today's employment report with a surge above the February high. With this week's big move, the 10-YR Yield is now up year-to-date and breaking out. Chart 8 shows $TNX hitting resistance in the 21 area (2.1%) and falling back last week. This pullback did not last long as the yield moved right back above 21 today. This looks like a breakout and the long-term trend could be reversing. I am using $TNX because it is is updated during the day and intraday data is available. $TNX is the 10-yr yield time 10. 10-year Treasury Yield ($UST10Y) is the actual 10-yr yield and it is updated end-of-day (EOD).

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Chart 8

TLT BREAKS JANUARY LOW... I showed the 20+ YR T-Bond ETF (TLT) bouncing off a Fibonacci retracement zone last week and then showed its getting cold feet with a decline on Monday. The bounce failed this week as TLT plunged below its February low. Chart 9 shows TLT firming in the 126-127 zone, bouncing to 130 last week and giving it all back this week. With today's sharp decline, TLT broke to new lows for the year and could be heading for its next support zone (November lows). I am now extending a Raff Regression Channel from the late January high (closing) to the current price. The upper trend line and the late February high combine to mark resistance in the 129-130 area. Chart 10 shows the 7-10 YR T-Bond ETF (IEF) with similar characteristics.

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Chart 9

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Chart 10

ECONOMIC INDICATOR TABLE ... Chart 11 shows the economic indicator table updated for early March. Keep in mind that this table was created on a simple spreadsheet using the reported data, which comes mostly from the St Louis Fed database (www.research.stlouisfed.org). There are no formulas. It is just a color-coded way to display the data, and it is only available in my market message commentaries at the beginning of every month.

Chart 11

With that out of the way, the overall economic assessment remains positive. This is not tradable information per se. Instead, it helps with the long-term trend in the stock market. Not all parts of the economy are great, but there are more signs of strength than weakness and this supports an uptrend in stocks. The ISM Manufacturing and Services Indices are strong, Auto-Truck Sales are holding above 16 million annualized and industrial production is strong. The retail and housing sides of the economy show some weakness, which is a concern because retail sales fell the last two months. Note, however, that the Retail SPDR (XRT) and Home Construction iShares (ITB) hit new highs this month and remain strong. The employment numbers are net positive for employment and the 4-month average for non-farm payroll growth is the highest in over ten years.

Chart 12