FINANCE SECTOR LEADS MARKET, BIG WEEK FOR BONDS, DOLLAR BOUNCES OFF KEY RETRACEMENT, GOLD FAILS AT BROKEN SUPPORT, OIL STALLS WITHIN DOWNTREND

FINANCE SECTOR LEADS MARKET HIGHER... Link for today's video. Stocks moved higher in early trading on Monday with the finance sector showing some leadership. Despite today's gains, it has been a rough year for this sector because the Finance SPDR (XLF) is down year-to-date, the Equal-weight Finance ETF (RYF) is unchanged and the SmallCap Financials ETF (PSCF) just turned positive with today's gain. Chart 1 shows year-to-date performance for these three and SPY. Notice that SPY (green) is up more and these three show relative weakness year-to-date. Also notice that XLF is the weakest of the three and still under water this year.

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Chart 1

Chart 2 shows price charts for all three. The Equal-weight Finance ETF broke out in early February, tested this breakout in early March and hit a new high last week. Trading has been choppy since early February, but the breakout is largely holding and bullish until proven otherwise. A move below the green support zone would be bearish. The Finance SPDR is the weakest of the three because it did not exceed its late December high. Even so, the early February breakout is largely holding as XLF bounces off the support zone again today. The SmallCap Financials ETF is the strongest of the three because it exceeded its late December high by the biggest margin. PSCF broke triangle resistance in mid March and this breakout is holding. The early March lows mark key support.

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Chart 2

A BIG WEEK FOR BONDS... After a steady advance in 2014, the 20+ YR T-Bond ETF (TLT) turned quite volatile in 2015 with three swings greater than 5%. The long-term trend is up, despite increasing volatility, but the ETF is trading at a potential inflection point with a slew of economic reports on deck this week. Chart 3 shows weekly prices over the last two years. The long-term trend is up because TLT hit a new high in January, remains above the long-term trend line and above key support. A break below key support would reverse the long-term up trend and target a move to the 117.5 area.

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Chart 3

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Chart 4

Chart 4 shows a daily candlestick chart with a breakout at 130 on March 18th. I am currently bullish because of this breakout and it is important that this breakout holds. TLT could be at an inflection point because it formed a bearish engulfing near the 62% retracement on Wednesday and gapped down on Thursday. Broken resistance turns into support in the 129-130 area and a break below 129 would negate the mid March breakout. Such a move would suggest a continuation of the prior decline (late Jan to early Mar) and target a move towards the November lows (117.5-118).

DOLLAR BOUNCES OFF KEY RETRACEMENT... Despite a sharp pullback the last two weeks, the long-term trend for the Dollar is up and could be poised to resume this week. Chart 5 shows the US Dollar ETF (UUP) within a steep uptrend since July. The Raff Regression Channel and consolidation around 25 mark long-term support. Note that the Euro accounts for 57.6% of the Dollar Index-ETF and the Yen accounts for 13.6%. The first indicator window shows the Euro ETF (FXE) in a downtrend with resistance in the 110-113.5 area. The second window shows the Yen ETF (FXY) in a downtrend with resistance in the 83-84 area. These downtrends support an uptrend in the Dollar.

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Chart 5

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Chart 6

The long-term uptrend is the dominant force on the Dollar chart right now and this makes me more inclined to look for bullish setups on the daily chart. Chart 6 shows UUP firming in the 50-62% retracement zone, which is a potential reversal zone after a pullback. The Raff channel (red) defines this pullback and I am marking resistance at 25.8, a break of which would be bullish. Note that this breakout is happening today.

GOLD FAILS AT BROKEN SUPPORT... Gold remains in a long-term downtrend. Chart 7 shows the Gold SPDR (GLD) with at least two bearish patterns. First, a descending triangle formed from June 2013 to October 2014 and the ETF broke support in November. Even though GLD rebounded with a surge to 125 in January, a lower high ultimately formed and the ETF fell back to the November lows. Overall, the big trend is clearly down because GLD traced out a falling channel over the last eighteen months. Falling channels take shape with lower lows and lower highs. The lower lows show increase selling pressure on the declines and the lower highs reflect diminishing buying pressure during the bounces.

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Chart 7

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Chart 8

Chart 8 shows GLD in the midst of an oversold bounce the last two weeks. Again, keep in mind that the long-term trend is down on the weekly chart and this favors bearish setups on the daily chart. Why? Because the long-term downtrend can pull trump at any time. GLD is interesting right now because it is at a potential reversal zone marked by the 38.2% retracement and resistance from the late February consolidation. The green Raff Regression Channel defines the current upswing. Look for a break below 114 to reverse this upswing and project a move to new lows.

OIL STALLS WITHIN DOWNTREND... Oil remains in a long-term downtrend. Chart 9 shows Spot Crude ($WTIC) becoming oversold after a decline from ~100 to ~45 in around six months. Oil moved into a rather volatile trading range in 2015 with several moves above/below 50. At this point, I view the trading range as a consolidation within a downtrend, which is typically a bearish continuation pattern. The February highs mark resistance at 55 and I would not contemplate a bullish reversal unless oil can break this level.

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Chart 9

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Chart 10

Chart 10 shows daily prices with a bear trap in mid March and an upswing over the last few weeks. $WTIC sprung the bear trap with a break below the January lows and a quick move back above the support break. This support break triggered short positions and traders with short positions are now trapped with losses after the quick surge back above 45. The swing since mid March is up with the Raff Regression Channel marking support at 47. A break below 47 would provide the first clue that the long-term uptrend is taking over and another leg lower is starting.