OEX LEADS, IWM TRIGGERS BULLISH SIGNAL, INDUSTRIALS PERK UP, CONSUMER DISCRETIONARY LAGS, 5 BOLLINGER BAND BREAKOUTS, OIL WEAKENS DESPITE EURO STRENGTH, XLE WEAKENS BELOW KEY MOVING AVERAGE

OEX LEADS WITH FIRST NEW HIGH... Link for today's video. The S&P 100 ($OEX) represents large-caps and this index is the first to hit a new high here in May. The S&P 500 reached a closing high on Thursday, but fell short of a new intraday high. As the first to hit new highs, this tells us that large-caps are leading the market right now. More importantly, these new highs affirm the long-term uptrend in the stock market. The lows extending back to mid April mark first support in the 905-910 area. The March lows mark second support in the 890 area. The indicator window shows the $OEX:$SML ratio bottoming in early April and moving higher the last six weeks. This means the S&P LargeCap 100 is outperforming the S&P Small-Cap 600. Chart 2 shows the S&P 100 ETF (OEF) for reference.

(click to view a live version of this chart)
Chart 1

(click to view a live version of this chart)
Chart 2

IWM TRIGGERS BULLISH SIGNAL... I did a presentation at ChartCon in 2014 and showed a trading strategy that featured a condition, a setup and a trigger, which is a classic three-step process to generate trade ideas. Trend identification is the first step. The trend is deemed up when the 25-day EMA is above the 125-day EMA. This can be quantified using two EMAs on the price chart or the Percentage Price Oscillator (25,125,1). The trend is up when the PPO is positive and down when negative. With an uptrend in place, the next step is to look for short-term pullbacks. This can be quantified using RSI and looking for moves below 40. The assumption behind this strategy is that the bigger uptrend will ultimately prevail and the pullback is a mere correction.

(click to view a live version of this chart)
Chart 3

We can never be sure how far a correction will extend so we need a trigger to signal an end to this correction, which is the third step. The trigger is quantified when StochRSI surges above .95 or hits 1. Early birds can look for a surge above .80. Now that the signal has triggered, we need a level that would suggest that would prove the signal wrong. Looking back at the last two signals, it seems chartists should use the low just prior to the signal for support (blue lines). Therefore, a break below 120 would negate this signal. Keep in mind that past performance does not guarantee future performance.

INDUSTRIALS PERK UP, CONSUMER DISCRETIONARY LAGS... The S&P 500 and S&P 100 hit new closing highs this week with the help of a new leader: industrials. PerfChart 3 shows one week performance for the nine equal-weight sectors. The Equal-Weight S&P 500 ETF (red) is up 1.35% and the sectors up more are outperforming. That would be the EW Technology ETF (RYT), the EW Industrials ETF (RGI), the EW Materials ETF (RTM), the EW Healthcare ETF (RYH) and the EW Consumer Staples ETF (RHS). The EW Industrials ETF is up the most and leading this group. As noted before, I like to use the equal-weight sectors when assessing broad sector performance because these are not weighted by market-cap. Note that the EW Consumer Discretionary ETF (RCD) shows relative weakness this week.

(click to view a live version of this chart)
Chart 4

(click to view a live version of this chart)
Chart 5

PerfChart 5 shows performance for the nine cap-weighted SPDRs. The Technology SPDR (XLK), Industrials SPDR (XLI) and HealthCare SPDR (XLV) are the clear leaders here. The Consumer Discretionary SPDR (XLY), Energy SPDR (XLE) and Utilities SPDR (XLU) are the clear laggards. Again, there is some concern with relative weakness in the consumer discretionary sector, but weakness in this sector is countered by leadership in technology, industrials and healthcare.

5 BULLISH BOLLINGER BAND BREAKOUTS... Among the nine sector SPDRs and the nine equal-weight sector ETFs, there were five bullish Bollinger Band breakouts this month. Not a bad month so far. A bullish Bollinger Band breakout occurs when the bands narrow and price breaks above the upper Bollinger Band. This is also known as a Bollinger Band squeeze. Chartists can plot the BandWidth indicator to confirm the degree of the band squeeze. Low BandWidth values reflect the narrowing of the Bollinger Bands. There is always a chance that the bullish signal fails, but the bullish signals are present right now and they are bullish until proven otherwise.

Chart 5 shows the Finance SPDR (XLF) with a Bollinger Band squeeze in late April and a breakout in early May. This breakout is bullish as long as support from the late April and early May lows holds. Chart 6 shows the EW Finance ETF (RYF) with a squeeze into late April, a head-fake break down and then an upside breakout. John Bollinger warned of the head-fake in his book, Bollinger on Bollinger Bands. At this point, the upside breakout is bullish as long as the support zone around 44 holds. Chart 7 shows a Bollinger Band breakout for the EW Finance ETF (RYF)

(click to view a live version of this chart)
Chart 6

(click to view a live version of this chart)
Chart 7

Chart 8 shows the Industrials SPDR (XLI) with a breakout this week and support in the 55 area. Chart 9 shows the EW Industrials ETF (RGI) with a breakout and support in the 88-89 area.

(click to view a live version of this chart)
Chart 8

(click to view a live version of this chart)
Chart 9

And finally, chart 10 shows the EW Technology ETF (RYT) with a squeeze into early May and a breakout this week. Support is set in the 94-92 area.

(click to view a live version of this chart)
Chart 10

OIL WEAKENS DESPITE EURO STRENGTH... Oil remains in an upswing since mid March, but weakened in May and started to diverge from the Euro. In contrast to oil, the Euro is up in May and advanced on Wednesday-Thursday. Chart 11 shows the Euro ETF (FXE) moving above 112, a resistance zone from the February consolidation is at hand. I still think the long-term trend is down and this is a counter-trend bounce. The Euro is important to watch for oil because it is positively correlated with USO. The indicator windows shows the Correlation Coefficient (FXE,USO) in positive territory for most of the last eight months.

(click to view a live version of this chart)
Chart 11

(click to view a live version of this chart)
Chart 12

Chart 12 shows the USO Oil Fund (USO) moving above 21 in early May and then stalling out. The Raff Regression Channel defines this upswing with support marked in the 19.5-20 area. A break here would reverse the upswing. The indicator window shows Spot Crude ($WTIC) with support at 57.

XLE WEAKENS BELOW KEY MOVING AVERAGE... Chart 13 shows the Energy SPDR (XLE) tracing out a bearish wedge within a bigger downtrend. I am assuming that the bigger trend is down because the ETF hit 52-week lows in December-January, the 200-day SMA is falling and the ETF is below the 200-day SMA. The rising wedge represents a counter trend bounce or bear market rally. Within the wedge, the green lines mark a Raff Regression Channel to define the upswing since mid March. This upswing is showing signs of reversing because XLE fell to 80 last week and is on the verge of breaking its support zone.

(click to view a live version of this chart)
Chart 13

(click to view a live version of this chart)
Chart 14

Chart 14 shows the Oil & Gas Equip & Services SPDR (XES) with a double bottom and breakout in mid April. Upside going has gotten tough the last few weeks, but the breakout is largely holding. Broken resistance, the Raff channel and the mid April low combine to mark the green support zone. A break below support would negate the double top and reverse the two month upswing.