BORING UPTREND, EQUAL-WEIGHT SPX WEAKNESS, IWM FOLLOW UP, INDUSTRIALS SPDR BOUNCES OFF SUPPORT, GE, HON AND UTX STALL, FEDEX HITS NEW HIGH, WILL UPS FOLLOW?, VIDEO EXTRAS
A PERSISTENT AND BORING UPTREND... Link for today's video. The stock market, as measured by the S&P 500, remains in a boring uptrend. Better a boring uptrend than a boring downtrend. As noted in Tuesday's webinar, the 5-day Rate-of-Change has been between +3.5% and -3.5% since January 7th. That is basically five months without a weekly gain or loss that exceeded 3.5%. Chart 1 shows this range marked with red shading on the ROC indicator. Prior to this stretch, there was an eight-month stretch from mid February 2014 to mid October 2014. Bollinger BandWidth confirms the dullness of the current advance because it has been below 4% since early April and near the low end of its two year range. Is this the calm before the storm? Will the storm be bullish or bearish? Truth be told, nobody really knows. There are some weak spots in the market, but the bulk of the evidence remains bullish. I will simply adhere to the bigger trend, which is up and favor further gains, however boring they might be. The green shading on the S&P 500 marks an uptrend that has been in place since October 2011.
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Chart 1
EQUAL-WEIGHT S&P 500 ETF WEAKENS ... Chart 2 shows the S&P 500 SPDR (SPY) with a rising channel and new highs in February, April and May. From low to high, the ETF is up around 9.5% since mid December, and is currently less than 2% from another new high. The lower trend line of the channel and March lows mark support in the 203-205 area. The red dotted lines mark pullbacks or consolidations along the way. Playing the upside breakouts has been tough, but adhering to the overall uptrend has been easy. The indicator window shows the Percentage Price Oscillator (10,75,1) measuring the difference between the 10-day EMA and the 75-day EMA. This momentum oscillator has been positive since late October and has defined the medium-term uptrend quite well. A break into negative territory would be, well, negative.
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Chart 2
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Chart 3
Chart 3 shows the Equal-Weight S&P 500 ETF (RSP) with similar characteristics on the price chart. The PPO (10,75,1), however, turned negative last week as RSP fell below 81. Notice that the PPO also weakened in January (red area) and RSP resumed its advance when the PPO turned positive again. While I am concerned with relative weakness in RSP and the loss of upside momentum, the ETF did hit a new high a few weeks ago and remains well above key support in the 79-80 area. The price chart shows an uptrend and the PPO shows negative momentum for two moving averages.
IWM FOLLOW UP... Here is a follow up to the Russell 2000 iShares (IWM) chart and strategy presented on May 15th. There are three parts. First, the overall trend is up when PPO(25,125,1) is positive and chartists should favor bullish setups under such conditions. Chartists can also use PPO(10,75,1). Second, a pullback in IWM occurs when 10-period RSI dips below 40. Third, this pullback ends when 10-period StochRSI surges above .95. The signal triggered on May 15th and remains in play. I am raising support to 122. A move below this level would negate the signal.
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Chart 4
XLI AND RGI BOUNCE OFF SUPPORT... Chart 5 shows the Industrials SPDR (XLI) with the strategy employed on the IWM chart above. The chart is a bit congested with annotations, but should be fairly easy to decipher. The red dotted lines mark the setup (RSI<10) and the green dotted lines mark the trigger (StochRSI>.95). There have been six setup-trigger combinations since the second week of December. The blue horizontal lines mark the low just before the trigger. XLI broke below this prior low only once (mid March - blue shading). This week's low mark the first level to watch for the current signal to fail. Overall, XLI remains in a rising channel and is getting its third bounce off the 55-55.5 support zone.
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Chart 5
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Chart 6
DIVERSIFIED INDUSTRIALS HOLD UP XLI... The XLI chart above shows the top ten components from the SPDRs website (www.spdrs.com). Overall, the components of XLI make for a rather motley crew. Industry groups represented include defense-aerospace, diversified industrials, mining equipment, air freight, railroads, truckers and airlines. There are quite a few stocks from the Dow Transports including UNP (5.27%), UPS (3.38%), FDX (2.62%), CSX (2.09%), DAL (1.68%), NSC (1.67%) and AAL (1.44%). Transportation stocks have been quite weak of late and this has weighed on XLI. Chart 7 shows the year-to-date performance for XLI and six other groups. Notice that the DJ Diversified Industrials Index ($DJUSID) is up over 5% this year and leading, XLI is flat and the five transport-related indices are down. No wonder XLI is flat for the year.
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Chart 7
GE, HON AND UTX CONSOLIDATE... General Electric (GE) is obviously the king of diversified industrials, while Honeywell and United Technologies are not far behind. Chart 8 shows GE with a big gap and breakout in mid April. The gap and resistance zone turned into support in the 26.5 area. More importantly, GE is consolidating after the gap and this could be a rest before another leg higher. The stock looked like it was breaking out in May, but fell back into a consolidation. Look for a move above the May highs to rekindle the uptrend.
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Chart 8
Chart 9 shows Honeywell (HON) within a rising price channel since December. The stock is not that exciting, but the rising channel defines an uptrend and HON is up around 5% year-to-date. HON broke out of the big wedge in mid May and then formed a smaller wedge into June. Look for a breakout here to resume the uptrend. Chart 10 shows UTX with a break out of the big wedge and consolidation into mid June.
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Chart 9
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Chart 10
FEDEX SURGES TO NEW HIGH. WILL UPS FOLLOW?... Even though the Dow Transports is down almost 8% year-to-date, one of its key components hit a 52-week high and shows some serious relative strength. The Dow Transports is a price-weighed Average of 20 stocks and FedEx (FDX) is by far the highest priced stock. As such, it accounts for around 13.5% of the Dow Transport iShares (IYT) and is the biggest component. For comparison, FDX is the 99th largest component of the S&P 500 SPDR (SPY) and accounts for .26% of the ETF. Chart 11 shows FDX hitting new highs in December and then embarking on a long consolidation. FDX broke out of this consolidation with a surge this month and hit a new high. New highs are bullish and this could bode well for deliver services overall.
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Chart 11
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Chart 12
Chart 12 shows UPS surging to a new high in mid January and then falling apart with a gap. Needless to say, an earnings miss and warning triggered this break down. The stock has since consolidated with 98.4 as the mid point of the range from February to June. Look for a move above 103 to trigger a breakout. The Raff Regression Channel and May-June lows mark a support zone in the 98-99 area. A break below 98 would be bearish here. Note that UPS and FDX feature prominently in XLI.
VIDEO EXTRAS AND TIMELINE ... Today's video will also cover the following charts. Link for today's video.
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Chart 13
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Chart 14
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Chart 15
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Chart 16
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Chart 17
