TECHNICAL SUMMATION FOR IWM, SIX STOCKS KEY TO QQQ, RANKING THE 18 SECTORS, BIOTECHS LEAD HEALTHCARE, GILEAD AND REGENERON LEAD IBB, MERCK HOLDS THE GAP, METALS-MINING-STEEL WEAKEN FURTHER, CATERPILLAR AND US STEEL

TECHNICAL EVIDENCE REMAINS BULLISH FOR IWM ... Link for today's video. The Russell 2000 iShares (IWM) has been lagging the broader market since mid April, but the bulk of the evidence remains bullish. Chart 1 shows IWM with four bullish factors and two bearish factors at work. Working from left to right, I am starting with the string of 52-week highs in February, March and April. New highs are bullish, period. The late April correction was swift, but not that deep as IWM held just above the mid March low. The ETF then broke out with a surge in May and MACD turned positive.

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Chart 1

And now for the negatives. IWM stalled out the last two weeks and could be forming a lower high. SPY hit a new high in May and this means IWM shows relative weakness. I am not, however, ready to write off IWM because we have yet to get a bearish signal to counter the bullish arguments. IWM remains above support in the 122-123 area and MACD remains positive. For a bearish signal, IWM needs to close below 122 and MACD needs to turn negative. A bearish signal would then target a move to the 118-119 area.

QQQ REFUSES TO BACK DOWN... Chart 2 shows the Nasdaq 100 ETF (QQQ) with MACD and four bullish factors. As with IWM, QQQ hit new highs in February and April (long-term uptrend). QQQ formed higher lows in late March and early May. The immediate move (four weeks) is up with support marked at last week's low. MACD is above its signal line. I am sure a few readers will be looking at the bearish divergence in MACD. I typically ignore bullish and bearish divergences because the majority of them do not foreshadow meaningful reversals. This is true for RSI as well.

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Chart 2

The short-term evidence is bullish as long as QQQ holds above last week's low and MACD remains above its signal line. Breaks in both IWM and MACD would be short-term bearish and target a move to the support zone in the 104-106 area (March lows and April-May lows). At this point, I would still be careful with short-term bearish signals because the bigger trends are up and these bigger uptrends are the dominant forces at work. In other words, a bigger uptrend can trump a short-term downtrend. In today's video., I will look at five big tech stocks that hold the key to QQQ's next move (GOOGL, MSFT, FB, AMZN, ORCL, INTC)

RANKING THE 18 SECTORS... Chart 3 shows a screen shot of the nine sector SPDRs and nine equal-weight sector ETFs in "summary" format. I created a ChartList with these eighteen ETFs, chose "summary" for the viewing option and sorted by the StockCharts Technical Rank (SCTR). There are a few key takeaways we can use going forward. First, healthcare is by far the strongest sector in the market. The SCTRs for the HealthCare SPDR (XLV) and Equal-weight Technology ETF (RYT) are both above 90. Second, the technology sector is the second strongest. The SCTRs for the Technology SPDR (XLK) and Equal-weight Technology ETF (RYT) are both above 80. These are the two sectors chartists should focus on for bullish setups. Third, the finance sector is in the middle, but the SCTRs for the Finance SPDR (XLF) and Equal-weight Finance ETF (RYF) are both above 60.

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Chart 3

Turning to the bottom of the pile, the energy, utilities and industrials sectors are by far the weakest. The Utilities SPDR (XLU) has an SCTR above 40, but the other five are below 40. Note that the SCTRs for the Industrials SPDR (XLI) and Equal-weight Industrials ETF (RGI) fell sharply last week. These are the three sectors to be avoided right now. On a final note, the percentage change is based on one month (May). The energy sectors lost the most, while the healthcare sectors gained the most. Also notice that the EW Tech ETF gained 2% and came in third place. Leadership from the equal-weight tech sector reflects broad strength in the sector.

BIOTECHS LEAD HEALTHCARE ... Chart 4 shows the Biotech SPDR (XBI) hitting a new closing high last week. With this new closing high, I extended the Raff Regression Channel from the prior closing high (mid April) to Friday's closing high. Key support does not change and remains in the 200-210 area. The lower line of the Raff Regression Channel and March-April lows mark support here.

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Chart 4

The March-April decline looks like a big falling flag or channel, which is typical for a correction within a bigger uptrend. The breakout and new high signal an end to the correction and a continuation of the uptrend. Before getting too bullish, note that trading has been choppy the last three months and the ETF is up around 15% from its late April low, which makes it short-term overbought. XBI is a very broad-based ETF with 97 stocks. GEVA weighs the most at 2.02% and OTIC weighs the least at .62%.

GILEAD AND REGENERON LEAD BIG BIOTECHS... Chart 5 shows the Biotech iShares (IBB) with a similar chart pattern. In contrast to XBI, this ETF is weighted towards market cap. Notice that the top ten stocks account for over 50% of the ETF and the top five account for 38%. Chartists interested in this ETF should also analyze the charts for GILD, AMGN, BIIB, CELG and REGN, which is basically the who's who of biotech. Also note that biotechs account for around 8% of QQQ.

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Chart 5

Chart 6 shows CandleGlance charts for the top six holdings in IBB. These are just quick and dirty chart assessments, which are sometimes the best because too much thinking can be dangerous. GILD, RGEN and MYL are the clear leaders because they are trending higher and their 20-day SMAs (blue) are above their 50-day SMAs (red). GILD broke out with a surge above its December-January highs. REGN Broke out in March, pulled back and then broke out again in May. MYL surged in March and April, and then consolidated with a pullback in May.

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Chart 6

On the weak side, the 20-day SMAs for AMGN, BIIB and CELG are below their 50-day SMAs. AMGN is testing support at 155, a break of which would be bearish. BIIB bounced in May, but is hitting resistance in the low 400s and a breakout here is needed to reverse the slide. CELG has been trending lower since mid March and resistance is set around 120. Breakouts in these three would help the biotech ETFs.

MERCK HOLDS THE GAP ... Merck (MRK) is not exactly a biotech stock, but it is part of the healthcare sector and a major pharmaceutical company. Chart 7 shows MRK with six technical features. First, the stock surged to a new 52-week high (uptrend). Second, the stock retraced 62% with a decline back to the 56 area (correction). Third, the stock broke out with a massive gap (end of correction). Fourth, the stock held the gap-breakout for more than a week (strong breakout). Fifth, the stock formed a flag wedge and broke out (bullish continuation pattern). Sixth, the SCTR moved above 60 in late April and again in late May (relative strength). The evidence is clearly aligning bullish for MRK and I am marking first support in the 59 area.

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Chart 7

METALS, MINING AND STEEL WEAKEN FURTHER... Despite a flat S&P 500 in May, the Metals & Mining SPDR (XME), Steel ETF (SLX) and Copper Miners ETF (COPX) fell and returned to their underperforming ways in May. PerfChart 8 shows monthly changes for the S&P 500, three materials-related ETFs and three commodity-related ETFs. The S&P 500 was virtually unchanged, but XME was down 3.52%, SLX was down 5.520% and COPX was down 8.4%. The S&P 500 was flat. We can also see weakness returning to the Base Metals ETF (DBB), Copper ETN (JJC) and Aluminum ETN (JJU) in May.

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Chart 8

Chart 9 shows XME in a long-term downtrend with resistance in the 30 area. The ETF bounced from mid March to mid May, but this short-term uptrend reversed with the breakdown in late May. Chart 10 shows the Steel ETF (SLX) failing to hold its double bottom breakout with a move back below 34.

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Chart 9

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Chart 10

Chart 11 shows US Steel (X) hitting new lows in January and then rebounding with a rising wedge into May. This looks like a counter-trend advance or bear market rally. A break below the April-May lows would reverse this bounce and signal a continuation lower. Chart 12 shows Caterpillar (CAT) hitting new lows in January-March, retracing 38-50% of the prior decline with a bounce to 90 and reversing the two month upswing with a break down last week.

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Chart 11

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Chart 12

VIDEO TIMELINE... for Monday, June 1st.

00:00 to 05:36 - Technical Evidence for IWM and QQQ
05:37 to 11:05 - Six Stocks Hold Key to QQQ
11:06 to 13:08 - Ranking the 18 Sectors
13:09 to 15:19 - Biotechs Lead Healthcare
15:20 to 17.46 - Gilead and Regeneron Lead big Biotechs
17:46 to 18:40 - Merck Holds the Gap
18:40 to 21:17 - Metals, Mining and Steel Weaken Further
21:17 to 22:40 - Caterpillar and US Steel

Link for today's video.