SPY GRINDS HIGHER, QQQ LEADS, IWM LAGS, HEALTHCARE-FINANCE-TECH LEAD, CONSUMER DISCRETIONARY STALLS, INDUSTRIALS TAKE A HIT, XRT FAILS AT RESISTANCE
S&P 500 CONTINUES TO GRIND HIGHER... Link for today's video. Price action has been rather boring in the major index ETFs since March, but there is a clear upward bias in price action and the trends remain up. Chart 1 shows the Equal-Weight S&P 500 ETF (RSP), which we will use as the proxy for the stock market. It has the same stocks as the S&P 500, but the ETF weights these stocks equally, as opposed to a market cap weighting. This equal weighting makes RSP a good proxy for the "average" stock in the market. The trend here is clearly up with the first of several 52-week highs in early November. Also note that the 52-week high in November was preceded by several 52-week highs. Thus, the ETF continued its string of 52-week highs in May and confirmed the overall uptrend. The Raff Regression Channel and March lows combine to mark support in the 79-80 area.
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Chart 1
The blue vertical line at March 11th marks the beginning of the grind higher. Notice that RSP is up around 5% from low to high (complete move). The blue line in late May is a cycle line to mark the number of days from the March low to the May high (currently 49). This looks like a slow grind with slow momentum, but 5% in fifty days is not a bad move at all. The year-to-date return, however, is a mere 4.3% for 99 days. The ETF would be up over 8% for 2015 if it tacks on another 4.5% in the next 150 days, which is not an unreasonable assumption giving the overall uptrend. Chart 2 shows SPY with similar characteristics. Today's video will include a live demo on using the percentage change tool and the cycle lines tool.
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Chart 2
BIG TECHS LEAD AS SMALL-CAPS LAG... Chart 3 shows QQQ extending its uptrend by hitting a new closing high on Wednesday, which makes QQQ the strongest of the major index ETFs right now. Notice that QQQ is up over 7% year-to-date and outperforming both RSP and SPY. The Raff Regression Channel and March lows mark support in the 104-106 area. The indicator window shows the StockCharts Technical Rank (SCTR) holding above 60 for over a year. This means QQQ has been in the top 40% of ETFs for performance for over a year.
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Chart 3
Chart 4 shows the Russell 2000 iShares (IWM) with a follow up to the bullish setup featured on Friday, May 15th. There are three steps. First, the bullish condition must be present (PPO>0). Second, a pullback marks the setup (RSI<40). Third, a momentum surge triggers the signal (StochRSI>.95). I am tempted to raise key support to 122, but we could see some volatility next week so I will leave it at 120 for now. A close below this level would negate the signal. Note that IWM is lagging because it did not record a new high in May (SPY and QQQ did).
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Chart 4
HEALTHCARE, FINANCE AND TECH LEAD SECTORS... So why is the stock market grinding higher? This grind indicates that there are pockets of strength and pockets of less strength. I am saying "less" strength because, outside of energy and utilities, I do not see any real weakness or selling pressure this year. That could change soon because the Industrials SPDR is coming under pressure.
First up, the Technology SPDR (XLK) and the HealthCare SPDR (XLV) sport the strongest charts of the nine sector SPDRs. Why? Because XLK hit a new high this week and XLV close to a new high. Chart 5 shows XLK breaking out in mid April and hitting a new high on Thursday. The March lows mark support in the 41-41.5 area.
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Chart 5
Chart 6 shows XLV hitting a new high in March, correcting into early May and breaking out over the last two weeks. Overall, the decline from late March to early May looks like a falling wedge and the breakout signals a continuation of the uptrend. The March-May lows mark support in the 70-71 area.
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Chart 6
The Finance SPDR (XLF) is the third strongest sector right now (IMHO - in my humble opinion). Chart 7 shows XLF hitting a new closing high last week, but failing to exceed the December intraday high. Nevertheless, XLF is up over 2% in May and is the second best performing sector SPDR (as of Thursday's close). XLV is the top performing sector with a 4.77% gain in May. Even though XLF fell back this week, the early May breakout has yet to be negated and the trend remains up as long as the key support at 24 holds.
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Chart 7
CONSUMER DISCRETIONARY SPDR STALLS OUT... The consumer discretionary is holding the market back, but not weighing on the broader market because it remains above support. Note that year-to-date, the Consumer Discretionary SPDR (XLY) is up over 6% and the second best performing sector (behind XLV at 10.18%). Chart 8 shows XLY breaking out in early February and starting a stall in early March. The ETF has traded on either side of 76 for three months. At this point, I still consider the cup half full because the ETF hit new highs in February, March and April. Moreover, support in the 74-75 area has yet to be broken. At worst, we are simply seeing a stalemate between buying pressure and selling pressure. A break below the support zone would signal an uptick in selling pressure and this would be bearish. For now, the bulls rule until proven otherwise.
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Chart 8
INDUSTRIALS SPDR FAILS TO HOLD BREAKOUT ... Chart 9 shows the Industrials SPDR (XLI) breaking triangle resistance in mid May, but falling back below the breakout zone with a sharp decline this week. This means a lower high formed from late February to March and a big support test is looming. The March lows and December trend line mark key support in the 55-56 area. A break here would fully reverse the choppy uptrend that has been in place since December. XLI is one of the weakest sector SPDRs because it is down year-to-date and has the second lowest SCTR of the nine sector SPDRs. Note that airlines, railroads and defense stocks feature in this sector.
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Chart 9
RETAIL SPDR FAILS AT RESISTANCE... Retail is an important part of the consumer discretionary sector and chart 10 shows the Retail SPDR (XRT) falling from resistance this week. XRT is basically in a two month downtrend with resistance marked at 100. A rising wedge formed in May and the ETF is breaking the lower trend line today. This signals a continuation of the April decline and projects a move below support in the 96 area. Such a support break would be quite negative for XRT and the consumer discretionary sector. Watch resistance at 100 for a breakout to turn this around.
