RISING YIELDS, THE YIELD CURVE, BANKING STOCKS, KEY LEVELS FOR BREADTH, HOUSING-RETAIL-SEMI ETFS CORRECT, BIOTECH ETFS HOLD GAPS, OIL EXTENDS UPTREND, GOLD FLOUNDERS, AIRLINES CORRECT, STOCKS OF INTEREST
THE KEY LINES IN THE SAND... There are certainly some concerns in the stock market right now, but I have yet to get a bearish signal to confirm these concerns. The bond market imploded over the last few weeks, long-term Treasury yields surged, small-caps have been lagging since early April and breadth has weakened. Nevertheless, the S&P 500 is still within 2% of a 52-week high and still in an uptrend. I am not that worried about the surge in Treasury yields because the rise in yields is a positive sign for the economy. Yields would not be surging if the economy were weakening. I am not that concerned with relative weakness in small-caps because the Russell 2000 iShares (IWM) accounts for less than 10% of the total US stock market.
When it comes to a bullish or bearish call for the broad market, I am going to use a relatively simple breadth metric to measure buying and selling pressure: High-Low Percent. High-Low Percent equals new 52-week highs less new 52-week lows divided by total issues. Buying pressure has the edge when High-Low Percent is positive. Selling pressure has the edge when High-Low Percent is negative. In order to get a broad market view, I am going to analyze High-Low Percent for the S&P 500, S&P MidCap 400, S&P Small-Cap 600 and Nasdaq 100 (Chart 1). I would turn bearish on the market when High-Low Percent for three of these four indices moves below -5%, which would suggest a material increase in selling pressure. Note that three of the four moved above +5% on October 22nd and this signal has yet to be negated. Two of the four dipped below -5% in mid December, but a third never confirmed and all four were back above +5% the very next week.
(click to view a live version of this chart)
Chart 1
GAPS ARE UNDER ASSAULT... Stocks gapped up on Friday, stalled a bit on Monday and gapped down on Tuesday. This means the gaps from Friday are under assault and there was no follow through. The inability to build on these gaps pointed to weak buying pressure. The filling of these gaps, with a gap I might add, shows an uptick in selling pressure. Chart 2 shows the Nasdaq 100 ETF (QQQ) gapping above 108, stalling and gapping below 108. The ETF remains well above medium-term support in the 104-105 area, but the immediate trend is clearly down (three weeks). I used a Raff Regression Channel to define this downtrend and the upper line ended near 109. This week's peak in the 109 area affirms short-term resistance. Chart 3 shows the Russell 2000 iShares (IWM) moving into Friday's gap with a decline on Tuesday.
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
SHORT-TERM BATTLE ZONE FOR SPY... Chart 4 shows the S&P 500 SPDR (SPY) within a wild range since April 17th (blue area). I am calling this a wild range because there have been five swings greater than 2% in the last five weeks (high to low or low to high). Trading is treacherous in this range, but the overall trend is still up. SPY hit new highs in February and April, and remains well above its first support zone. Even though the ETF is having trouble staying above 211, selling pressure is still contained and we have yet to see a significant support break. The uptrend, therefore, remains in force.
(click to view a live version of this chart)
Chart 4
WEBINAR TOPICS AND CHARTS... The rest of today's Market Message can be seen through the webinar recording. Here are some of the highlights:
- Bonds Plunge and Yields Surge
- Banks and Brokers Leading as Yield Curve Steepens
- Retail, Housing and Semis Correct
- Airlines Correcting in Uptrend
- Mind the Gaps in Biotech ETFs
- Oil Holds Upswing
- Equal-weight Energy ETF Tests Upswing Support
- Oil & Gas Equip & Services SPDR Tests Breakout
- Dollar Firms at Support Zone
- Gold Could be Flagging
- GDX Maintains Wedge
- Stocks: AAPL, BABA, FB, FEYE, FFIV, FINL, FISV, GILD,
GOOGL, ETFC, MSFT, NFLX, SCHW, SPLK, USG, XLNX
