STOCKS AND TREASURIES DIVERGE, KEY GROUPS AND BREADTH WEAKENING, FINANCE HOLDS STRONG, MATERIALS START TO LEAD, ENERGY ETFS EXTEND UPTRENDS, COPPER AND ALUMINUM LEAD BASE METALS, USING THE CHANDELIER EXIT
WEBINAR ... Stocks came under selling pressure on Tuesday with techs and small-caps leading the way lower. The overall picture for stocks remains largely unchanged. The major index ETFs are in slow and steady uptrends this year, but we are seeing some weakness in a few key groups and some breadth indicators. This weakness is not enough to turn bearish just yet though. Today's webinar will start with a review of some prior Market Messages and then I will show updated charts for the major index ETFs, key sectors and over a dozen industry group ETFs. An overview can be found in the next section. Today's Market Message will just focus on the changing dynamic between stocks and bonds, and how to use the Chadelier Exit. Click here for today's webinar
WEBINAR TOPICS AND CHARTS ... The webinar starts with a review of the Market Messages and this section runs until the 18 minute mark. The chart analysis below starts around the 19 minute mark and continues until the 50 minute mark. Q&A starts around the 50 minute mark and the webinar ends at 60 minutes.
- Stocks and Treasuries Diverge
- S&P 500 SPDR Stalls Near Highs
- Equal-Weight S&P 500 ETF Lags within Uptrend
- S&P SmallCap iShares Lags and Tests Support
- Finance SPDR Goes for Breakout
- Industrials SPDR Fails
- Utilities SPDR Starts Break Down
- Energy SPDR Battles Breakout
- Consumer Staples SPDR Forms Lower Highs
- Home Construction iShares and Retail SPDR Correct
- Semiconductor iShares Breaks Wedge Support
- Regional Bank and Broker ETFs Hold Up
- Gold Miners ETF Extends Wedge
- Metals & Mining SPDR Still Rising within Downtrend
- Steel ETF Holds Breakout
- Oil & Gas Equip & Services SPDR Hits New High for 2015
- Gold SPDR Bounces within Downswing
- Aluminum ETN Gets Big Surge
- Base Metals ETF Breaks Out
Click here for today's webinar
STOCKS AND TREASURIES GO THEIR SEPARATE WAYS... There was a clear change in the relationship between stocks and Treasuries in February. The chart below shows the S&P 500 SPDR (SPY) and the 20+ YR T-Bond ETF (TLT) advancing throughout 2014. SPY hit a new high in late December 2013 and TLT hit a new high in late January. TLT was then knocked for a big loss in February, but SPY continued higher. TLT formed a lower high in late March and turned sharply lower in April. SPY, on the other hand, turned back up in March and hit a new high in April. Stocks and Treasuries were positively correlated for the most part in 2014. They are now negatively correlated and moving in opposite directions.
(click to view a live version of this chart)
Chart 1
USING THE CHANDELIER EXITS TO DEFINE THE TREND... I showed a chart of the Biotech iShares (IBB) in Monday's Market Message and used the Raff Regression Channel to mark a support zone in the 320-330 area. I use the Raff Regression Channel because it takes volatility into account when marking support or resistance. Chart 3 shows IBB with the Chandelier Exit (22,5), which also takes volatility into account. A long Chandelier Exit (22,5) is based on the 22-day ATR and the 22-day high. The exit is set five ATR values below the 22-day high. On the IBB chart, the exit is at 327.54 and the calculation is shown on the chart.
(click to view a live version of this chart)
Chart 2
Why did I choose five as a multiplier and not three, which is the default? I wanted a Chandelier line that held above the prior dips (July, October, late March). In this regard, the Chandelier line helps define the uptrend and set a dynamic support level. A close below this line would mark a decline that was greater than five ATRs from the 22-day high. Such a decline would reflect a significant amount of selling pressure and be capable of reversing the overall uptrend.
The Chandelier Exit Short can be used for securities in downtrends. Chart 3 shows Spot Crude ($WTIC) with the Chandelier (22,4,short) in red. This chart stops on April 7th, which is when the breakout occurred. Notice that Light Crude held below this Chandelier line from July until March. The surge above this line represents a move that was greater than four ATR values above the 22-day low. Such a surge reflects a significant amount of buying pressure that is capable of reversing the downtrend.
