SLOW AND STEADY IS STILL WINNING, SMALL-CAPS AND MID-CAPS ARE NOT BROKEN, XLY SURGES OFF SUPPORT, XLF RENEWS BREAKOUT, IAI CONSOLIDATES, CLOUD-INTERNET-SOFTWARE ETFS SPORT STRONG SCTRS, XLI BREAKS TRIANGLE
SLOW AND STEADY IS STILL WINNING... Link for today's video. Stocks fell back from late April to early May and and this might have been enough to turn short-term bearish, but these declines did not affect the medium-term uptrends. In fact, the S&P 500 was never more than 3% from its late April high, which was a 52-week high. Even though the uptrend slowed over the last two months, it did not reverse and selling pressure has been contained. Let's not confuse "less strength" with actual selling pressure. A noticeable uptick in selling pressure is required to reverse uptrends and trigger bearish signals. In the absence of a bearish signal, I will continue to default to the overall trend, which is still up. I am also trying to focus on the bigger trend (1-6 months) and keep the short-term wiggles (1-4 weeks) within the context of the bigger trend.
Chart 1 shows the S&P 500 SPDR (SPY) in an uptrend overall, but breadth has weakened over the last six weeks. Breadth, however, is not bearish. On the price chart, SPY surged 11.7% from mid October to early December and then embarked on a slow grinding advance. Notice that the ETF is up less than 3% from the early December peak. Even though momentum has slowed even more the last two months, the uptrend remains in place and selling pressure has been limited. As noted last week, SPY has not even closed below short-term support at 208 so it is premature to think about a correction. A close below 208 would argue for a correction and I would then target a move to the 198-200 area.
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Chart 1
The indicator window shows S&P 500 HiLo% ($SPXHLP) exceeding +15% on a regular basis between late October and mid March. High-Low Percent is still positive, but it has been "less" positive since late March. Notice that High-Low Percent has not been above +8% since March 24th. Despite less strength, the indicator is not bearish yet. It would take a move below -5% to signal enough selling pressure to turn this indicator bearish. The lower window shows the S&P 500 AD Line ($SPXADP) flattening out over the last two months. A break below the March low would show an uptick in selling pressure and turn the AD Line bearish.
SMALL-CAPS AND MID-CAPS ARE WEAKER, BUT NOT BROKEN... Chart 2 shows the S&P MidCap SPDR (MDY) breaking below the mid April low en route to a whopping 2.85% decline from the April high. Yes, I am being sarcastic because it is hard to become bearish so close to a 52-week high. The overall trend is up and MDY is simply working its way higher (think ebb and flow). The ETF surged 13.2% from mid October to late November and another 6.3% from the late November high. This move since late November has been choppy, but the ETF continues to record higher highs to maintain the uptrend. High-Low Percent was not as strong in April and dipped into negative territory twice in May already, but we have yet to see a break below -5%, which is my line in the sand. A move below -5% would mark a noticeable expansion of new lows and this would signal a correction or downtrend in MDY. The AD Line hit a new high in late April and remains well above its first support level. No downtrend here. Chart 3 shows the S&P SmallCap iShares (IJR) with similar characteristics.
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Chart 2
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Chart 3
Chart 4 shows the Nasdaq 100 ETF (QQQ) surging over 15% from mid October to late November and then adding another 4.9% into late April. The trend since late November is clearly up as QQQ simply zigzags higher. Even though QQQ closed below short-term support at 207 on Wednesday, stocks rebounded on Thursday-Friday and the bigger uptrends are clearly in control. I am marking first support in the 104 area. As with the other three ETFs, Nasdaq 100 HiLo% ($NDXHLP) also weakened in April, but did not turn outright bearish with a move below -5%. Similarly, the AD Line remains above its March lows and has yet to break down.
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Chart 4
CONSUMER DISCRETIONARY SPDR SURGES OFF SUPPORT... Last week I showed key support zones for the Consumer Discretionary SPDR (XLY), Technology SPDR (XLK), Industrials SPDR (XLI) and Finance SPDR (XLF). All four sectors held support and all four surged on Thursday-Friday. The market as a whole is in good shape as long as the majority of these sectors hold support. Chart 5 shows XLY holding just above support into early May and surging the last two days. This surge further affirms support and keeps the bigger uptrend alive. The SCTR is back above 90 and XLY is one of the top performing sectors. The market cannot be in that bad of a shape when XLY shows relative strength. Chart 6 shows the Equal-Weight Consumer Discretionary ETF (RCD) bouncing off its support zone and the SCTR moving back above 80 this week.
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Chart 5
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Chart 6
FINANCE SECTOR RENEWS BREAKOUT... The on-again off-again breakout in the Finance SPDR (XLF) is back on again as the ETF surged above last week's high. Chart 7 shows XLF with a tightening consolidation into early May and a breakout last week. The bulls got cold feet as XLF moved back below the breakout zone, but the support in the 24 area ultimately held. This week's surge keeps the bigger uptrend alive and XLF may challenge the December highs soon. The indicator window shows the SCTR perking up with a move above 70 on Friday. Within the finance sector, chart 8 shows the Broker-Dealer iShares (IAI) breaking out of a triangle consolidation and showing good relative strength (SCTR>70)
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Chart 7
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Chart 8
TECHNOLOGY SECTOR HOLDS ABOVE SUPPORT... Chart 9 shows the Technology SPDR breaking out in late April, pulling back into early May and surging the last two days. XLK did not even come close to a support test and remains in an uptrend overall. The fact that XLK did not even test support shows a bit of relative strength.
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Chart 9
CLOUD, INTERNET AND SOFTWARE ETFS SPORT STRONG SCTRS... We are also seeing strength in several tech-related industry group ETFs. Chart 10 shows the Cloud Computing ETF (SKYY) hitting a new high in April, forming a flag/pennant into early May and breaking out today. The advance may be late stage, but the trend here is clearly up and SKYY shows relative strength (SCTR>90).
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Chart 10
Despite recent debacles with Twitter (TWTR) and LinkedIn (LNKD), chart 11 shows the Internet ETF (FDN) holding up reasonably well and bouncing off broken resistance in the 66 area. This is a great argument for spreading risk and using ETFs to play volatile groups.
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Chart 11
Chart 12 shows the Software iShares (IGV) within a steady uptrend since late November. Chartists can argue about the stage of this trend, but there is really little argument on trend direction. It is up. Broken resistance turns first support in the 98-99 area and key support is in the 94 area.
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Chart 12
INDUSTRIALS SPDR BREAKS TRIANGLE... Chart 13 shows the Industrials SPDR (XLI) holding support in the 55-55.5 area with a surge above the triangle trend line on Friday. XLI has been one of the weaker sectors since late March because the SCTR dipped below 50 several times. The uptrend was also wobbling, but XLI never actually broke down. The green lines define a slight uptrend since December. The blue lines show a triangle consolidation and the ETF is attempting a breakout with a gap-surge today.
