SMALL AND MID-CAP ETFS FALL BACK WITHIN CHANNELS, SECTOR LEADERS AND LAGGARDS, EW FINANCE BREAKS, EW CONSUMER DISCRETIONARY TESTS SUPPORT, EW TECH ETF CORRECTS, EW ENERGY ETF NEARS RESISTANCE -- HOUSING AND RETAIL LAG IN APRIL

SPY EXTENDS CONSOLIDATION ... Link for today's video. Stocks were down sharply in early trading on Friday. I think it is because there were more sellers than buyers, but media outlets seem to be blaming Europe and China. The Eurotop 100 ($EUR) fell 1.54% on Friday, but is still within 3% of a 52-week high. I see no real problem there. In Asia, Hang Seng futures fell sharply after Chinese authorities took steps to tighten margin requirement. Truth be told, I think this is just noise and we should focus on the charts. Chart 1 shows the S&P 500 SPDR (SPY) hitting new highs in February and then consolidating with a triangle into April. The ETF fell from the triangle highs today, but this does not affect the overall picture. The big trend remains up and the ETF remains within a consolidation, which is a correction of sorts. A consolidation within an uptrend is typically bullish and a breakout would signal a continuation of this uptrend. The indicator window shows the StockCharts Technical Rank (SCTR) pulling back in March and trying to turn up in April, which is similar to what happened in early February.

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Chart 1

SMALL AND MID-CAPS MAINTAIN CHANNELS... Chart 2 shows the S&P SmallCap iShares (IJR) within a rising channel. The ETF bounced to the late March high on Wednesday, but fell back over the last two days. Should a correction take hold, the March low and lower line of the Raff Regression Channel combine to mark support in the 113-114 area. The SCTR turned down in April, but remains above 70 and I would not become concerned unless the indicator breaks below 40, which would show serious relative weakness. Chart 3 shows the S&P MidCap SPDR (MDY) with similar characteristics.

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Chart 2

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Chart 3

SECTOR LEADERS AND LAGGARDS... Chart 4 shows the Equal-Weight S&P 500 ETF (RSP) in the main window and the StockCharts Technical Rank (SCTR) for the nine equal-weight sector ETFs. I am using the equal-weight sectors because these ETFs are more representative of the sector as a whole. Note that this chart was created using a StockCharts PRO account, which allows up to ten different symbols on one SharpChart. There are four takeaways for relative performance. First, healthcare, consumer discretionary, technology and consumer staples are the strongest sectors, by far. All four have SCTRs above 75. The materials sector is a distant fifth at 56.80. Second, the SCTRs for the materials and energy sector made big moves over the last few weeks. I have my doubts on the big move in energy, but the big move in materials may be worth watching because the Equal-weight Materials ETF (RTM) hit a new high in February and may be forming a higher low this week. I featured RTM in the Market Message on Monday. The Equal-weight Energy ETF (RYE), in contrast, hit a 52-week low in January and is in a long-term downtrend.

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Chart 4

The third takeaway is waning relative strength in the finance and industrials sectors. Both SCTRs are above 50, but just barely. I use 40 as a relative weakness threshold and 60 as a relative strength threshold. A move above 60 signals relative strength and remains valid until negated with a move below 40. Neither SCTR has yet to break 40, but I will be watching closely. The fourth, and final takeaway, is the April break down in the SCTR for the utilities sector. With a move below 30 this week, the Equal-weight Utilities ETF (RYU) shows the worst relative performance. Let's look at some individual charts.

CONSUMER DISCRETIONARY ETF TESTS TRIANGLE TREND LINE... Chart 5 shows the Equal-Weight Consumer Discretionary ETF (RCD) consolidating with an ascending triangle within an uptrend. This is a bullish continuation pattern, but the ETF fell back from resistance this week. A successful test and a breakout would signal a continuation of the uptrend. Broken resistance and the March lows combine to mark first support in the 88-90 area.

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Chart 5

FINANCE ETF BREAKS PENNANT SUPPORT... Chart 6 shows the Equal-weight Finance ETF (RYF) within a choppy uptrend since early November. The ETF plunged at the end of March and then formed a small rising wedge or a pennant, which is a short-term continuation pattern. A break below pennant support would signal a continuation of the March decline and project a bigger support break at 43.50. This break is happening on Friday.

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Chart 6

TECH ETF FORMS LOWER HIGH... Chart 7 shows the Equal-weight Technology ETF (RYT) with new highs in December and February, which means the long-term trend is up. Despite this big uptrend, the immediate move is down and marked by a Raff Regression Channel. The channel is drawn from the closing high to the closing low of the move. I am marking a resistance zone around 94. This correction remains in play until a break above 94.

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Chart 7

ENERGY ETF NEARS POTENTIAL RESISTANCE... Energy is the best performing sector in April and the Equal-weight Energy ETF (RYE) is up over 15% in five weeks. The move is certainly strong in percentage terms, but could still fit within a counter-trend bounce. Chart 8 show RYE with a rising channel this year. I drew the lower trend line first and then drew the upper trend line parallel from the mid February high. This line marks potential resistance in the 74 area. Also notice that the bottom of the November consolidation and the 38-50% retracement zone mark resistance here. Within this rising channel, the swing is up with the green Raff Regression Channel marking support at 69. This is the first level to watch.

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Chart 8

HOUSING AND RETAIL LAG IN APRIL... There are some concerns because the Home Construction iShares (ITB) and the Retail SPDR (XRT) have been lagging in April. Chart 9 shows a SharpChart with nine key industry group ETFs and the Equal-Weight S&P 500 ETF (RSP). Note that this chart was created with a StockCharts PRO account, which allows up to ten symbols per chart. The Equal-Weight S&P 500 ETF is up around .71% and five of the nine industry group ETFs are up this month. Four of the nine are down: Transport iShares (IYT), Retail SPDR (XRT), REIT iShares (IYR) and Home Construction iShares (ITB). As key parts of the consumer discretionary sector, relative weakness in housing and retail is a concern that chartists should watch going forward.

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Chart 9

MARKING SUPPORT FOR ITB AND XRT... Chart 10 shows the Home Construction iShares hitting new highs in January, February and early April, and then falling rather sharply the last two days. The overall trend is up with key support marked in the 26.5-27 area. The indicator window shows the SCTR hovering above 90 still. ITB has shown exceptional relative strength since early February and some relative weakness in April. This soft patch has yet to affect the bigger uptrend in relative strength yet.

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Chart 10

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Chart 11

Chart 11 shows the Retail SPDR hitting new highs into late March, stalling in early April and falling this week. The big trend is still up with first support in the 96-98 area. The indicator window shows the SCTR moving above 80 in mid November and holding 80 for some five months. The April soft patch has not been enough to dent long-term relative strength - yet.