QQQ AND SPY TEST SUPPORT, MID-CAPS AND SMALL-CAPS HOLD UP BETTER, CONCERNS WITH XLF, XLI AND XLK, HOUSING AND RETAIL REMAIN STRONG

QQQ AND SPY TEST SUPPORT... Programming note: Today's report will be brief, and there is no video, because I am on the road at the MTA symposium in NYC. Stocks were hit with selling pressure this week, but this was not enough to dislodge the bigger uptrends. Small-caps and mid-caps led on the way up and held up the best on the pullback. Large-caps underperformed on the way up and where hit harder on Wednesday.

Chart 1 shows the Nasdaq 100 ETF (QQQ) testing support from broken resistance in the 105 area. A break below 104 would break support and signal a continuation of Wednesday's decline. This would likely push RSI below 40 and suggest that a bigger corrective period is upon us. For now, the decline from 108 to 105, while sharp, is a mere pullback within an uptrend.

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Chart 1

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Chart 2

Chart 2 shows SPY falling to its first support zone. Note that SPY did not take out its prior high and has not gone anywhere since early December. The ETF has basically traded above/below the 205 level for the last four months. The lower trend line of the rising channel and the early March low combine to mark support in the 202.5-205 area.

MID-CAPS AND SMALL-CAPS HOLD UP BETTER... Chart 3 shows the S&P MidCap SPDR (MDY) within a rising channel since late November. After another higher high near 280, the ETF fell back below 275 this week. Even so, the ETF remains well above the lower trend line of the rising channel and above the mid March low. Thus, the trend here is still up with key support in he 265-270 area. The indicator window shows mid-caps outperforming SPY because the price relative (MDY:SPY ratio) hit a new high earlier this week. Chart 4 shows the S&P SmallCap iShares (IJR) with similar characteristics and small-caps outperforming large-caps (IJR:OEF ratio).

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Chart 3

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Chart 4

CONCERNS WITH XLF, XLI AND XLK... There are some concerns with relative weakness in the Finance SPDR (XLF), Industrials SPDR (XLI) and Technology SPDR (XLK). While I still think these three are in long-term uptrends, they lower highs in March and are underperforming this month. This means three of the four offensive sector SPDRs are lagging, and this is weighing on large-caps. Chart 5 shows XLI hitting a new high in late February and then forming a lower high in March. A falling channel defines the five week downtrend and the ETF is firming near the lower trend line, which is parallel to the upper trend line. Chart 6 shows XLK hitting a new high four weeks ago and then forming a lower high after this week's decline.

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Chart 5

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Chart 6

Chart 7 shows the XLF with a pop to 24.75 in mid March and a plunge below 24 erasing the pop . Once again, it looks like XLF is forming a lower high from December to March. XLF is testing the mid March low with indecision the last two days and a break would be bearish.

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Chart 7

HOUSING AND RETAIL REMAIN STRONG... The Home Construction iShares (ITB) and the Retail SPDR (XRT) remain in uptrends and held up quite good this week. Chart 8 shows ITB breaking flag resistance in mid March, falling back earlier this week and bouncing again on Friday. This breakout is holding for the most part and ITB remains one of the strongest groups. The trend is clearly up here with the March lows marking support.

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Chart 8

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Chart 9

Chart 9 shows the Retail SPDR (XRT) hitting a new high earlier this week and falling sharply on Wednesday, but remaining in a clear uptrend overall. Broken resistance in the 96-98 area turns into the first important support zone to watch. Note that XRT is a very broad ETF with 102 retail stocks and it is equal-weighted for the most part. This means it represents a good cross-section of the US retail industry.