HIGH-LOW PERCENT SIGNALS, AD LINE CONFIRMATION, TREND MOVEMENTS, FINANCE SECTOR WEAKENS, MATERIALS SECTOR WOBBLES, TWO LEADING HEALTHCARE GROUPS, WATCH SWINGS IN OIL AND XLE, 10-YR YIELD LACKS CATALYST, UTILITIES WEAKEN
WEBINAR CHARTS... Below are some of the charts highlighted in today's Webinar. There was also a tutorial on Bollinger Bands using Apple as the example. Lots of stocks and ETFs show narrowing ranges and this is a great time to brush up on a classic indicator. I also featured some stock setups from medical devices, healthcare providers, industrials and auto parts. These are exclusive to the Webinar. Click here to review the recording.
HIGH-LOW PERCENT INDICATORS REMAIN BULLISH... Chart 1 shows High-Low Percent for the S&P 500, S&P MidCap 400, S&P Small-Cap 600 and Nasdaq 100. High-Low Percent equals new 52-week highs less new 52-week lows divided by total stocks. It is positive when new highs outnumber new lows and negative otherwise. This indicator group turned bullish when three of the four moved above +5% on October 22nd and will remain bullish until there is a counter signal (three of the four move below -5%). High-Low Percent has weakened in April, but we have yet to see enough selling pressure to push three of the four indicators below -5%. Nasdaq 100 HiLo% ($NDXHLP) is the weakest of the group because its 10-day SMA is the lowest (+2.10%).
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Chart 1
KEY AD LINE HITS NEW HIGH... Chart 2 shows the AD Line for these four indices in the lower windows and the S&P 1500 AD Line ($SUPADP) in the top window. First, note that the S&P 1500 AD Line, S&P SmallCap AD Line ($SMLADP) and S&P MidCap AD Line ($MIDADP) hit new highs last week. These new highs reflect broad strength in the stock market and confirm the new highs in the underlying indices. There are no bearish divergences to be concerned about at the moment. The S&P 500 AD Line ($SPXADP) is flat since late February and the Nasdaq 100 AD Line ($NDXADP) formed lower highs over the last seven months. The Nasdaq 100 AD Line is clearly the weakest of the five. Look for a break above the early April high to end this string of lower highs and revive the uptrend.
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Chart 2
BREAKING DOWN AN 8-MONTH ADVANCE... Chart 3 shows the Consumer Discretionary SPDR (XLY) over the last eight months. The ETF is up around 12% from late October to now. This 12%, however, has not been a straight line. In fact, the two advances that capture this trend take up around 30% of the time (49 days). The remaining 113 days, or 70%, is taken up with flat price action and downward price action. This is an oversimplification and just one eight month period, but it highlights a big challenge for traders. Namely, directional movement is largely the exception, not the norm.
XLY is currently in a consolidation that is entering its 35th day. At this point, it is viewed as a consolidation within an uptrend because the ETF hit new highs in March. The March lows mark first support in the 74 area. The indicator window shows the StockCharts Technical Rank (SCTR) near 90, which means consumer discretionary is one of the strongest sectors in the market right now. Chart 4 shows the Equal-Weight Consumer Discretionary ETF (RCD) with an ascending triangle forming over the last seven weeks.
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Chart 3
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Chart 4
FINANCE SECTOR LOOKS VULNERABLE ... Stocks surged on Monday with many ETFs and indices recovering most of Friday's losses. The Finance SPDR (XLF) also bounced, but the bounce was on the anemic side and the ETF continues to lag the broader market. First, notice that XLF formed a lower high in mid March and remains below this high. Second, notice that the StockCharts Technical Rank (SCTR) fell into the 40-60 zone in April. XLF was one of the leading sectors in November-December when the SCTR was above 80. It is now just an average sector and on the verge of becoming a laggard if the SCTR moves below 40. On the price chart, a rising flag of sorts is taking shape and a break below 24 would provide the first bearish signal. A move below the March lows would break a key support zone and be bearish for this key sector. Chart 6 shows the Equal-weight Finance ETF (RYF) for reference.
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Chart 5
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Chart 6
MATERIALS SPDR WOBBLES... I also have concerns with the Materials SPDR (XLB). Chart 7 shows XLB getting a bounce off the 50-62% retracement zone in early April, but this bounce is looking fragile after hitting resistance near the 2014 highs. The April swing is still up and I am watching support at 49.2, which stems from the Raff Regression Channel and last week's lows. A break here would reverse the short-term upswing and signal a continuation of the March decline. With XLB showing relative weakness, a break down at this stage would not be welcome. The indicator window shows the SCTR dipping below 40 today, which is the third weakest SCTR of the nine SPDRs.
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Chart 7
MEDICAL DEVICES AND HEALTHCARE PROVIDERS ETFS STAY STRONG... Healthcare is the strongest sector in the stock market right now. Even though the trend in the sub-groups appears mature, nobody really knows how far it will extend. Charles Dow suggested that the trend is in force until proven otherwise. Further more, neither the length nor the duration can be determined. The best we can do is identify the trend and trade accordingly. Chart 8 shows the Medical Devices ETF (IHI) within a strong uptrend. The ETF surged in October-November and continued working its way higher from December to April. The rising channel defines this uptrend with support in the 116-118 area. Chart 9 shows the HealthCare Providers ETF (IHF) consolidating with a pennant. I will highlight some stocks in these two groups in the webinar.
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Chart 8
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Chart 9
OIL AND THE ENERGY SPDR... Chart 10 shows Spot Crude ($WTIC) surging over 30% since mid March. Admittedly, I missed this move and did not expect such a strong bounce. Despite a break above the February high, I still think the long-term trend is down and this is a counter-trend bounce. Call me stubborn, but oil hit a 52-week low in mid March and remains well below the falling 200-day moving average. I am using a Raff Regression Channel to define the current upswing and mark support at 51. A break below this level would reverse the upswing and signal a continuation of the bigger downtrend.
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Chart 10
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Chart 11
Chart 11 shows the Energy SPDR (XLE) with a higher high in February and a higher low in mid March. There is a case to be made for an uptrend since mid January, but I think this is a counter-trend bounce that could ultimately form a rising wedge. The green trend line and support zone define the upswing within this wedge. XLE stalled the prior three days and is forming a black candlestick today. Watch for a move below 80.7 to reverse this upswing. The indicator window shows the SCTR moving back below 40 and XLE is showing relative weakness again.
YIELDS, BONDS AND UTILITIES ... The 10-YR Treasury Yield ($TNX) and the 20+ YR T-Bond ETF (TLT) were at potential reversal areas over the last few weeks, but neither got a catalyst to produce the actual reversal. Barring such a catalyst, the existing trends remain in force: TLT is trending up and $TNX is trending down. Chart 12 shows the 10-YR Yield falling back to the 19 area (1.9%) and firming over the last few weeks. $TNX remains above the prior low and could be forming a higher low, but the trend since early March is also down. A break above 20 (2%) is needed to solidify a higher low and produce an upside catalyst to reverse this downtrend. Until then, both the long-term and immediate trends are down, which means the outlook is for lower yields (higher bond prices). Even though I remain bearish on yields, this is worth watching for two reasons. First, a breakout at 20 (2%) could trigger a taper tantrum and send yields sharply higher. Second, a surge in yields would likely have a negative impact on utilities, REITs and other high-yielding stocks. This relationship was noted in last week's Webinar and in the Market Message on April 6th. Chart 13 shows TLT with support in the 129-130 area. Chart 14 shows the Utilities SPDR (XLU) for reference.
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Chart 12
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Chart 13
