JUMP IN BOND YIELDS PUTS STOCK REBOUND IN JEOPARDY -- QQQ IS PULLING BACK FROM TEST OF OLD HIGH -- S&P 500 LOOKS OVEREXTENDED -- BOUNCING DOLLAR WEAKENS GOLD -- EMERGING MARKETS ARE ALSO EXPERIENCING PROFIT-TAKING
TEN-YEAR BOND YIELD IS BACK OVER 2.90% ... After a modest pullback that started last Thursday, bond yields are climbing again today. The daily bars in Chart 1 show the 10-Year Treasury Yield ($TNX) jumping 6 basis points to 2.92% and within striking distance of its four-year high reached just last week. That's having a ripple effect throughout several other markets. It's giving a slight boost to financial stocks. But it's pushing bond prices lower and bond stock proxies like consumer staples, utilities, and REITs along with them. The jump in bond yields may also be putting the recent rebound in stocks in jeopardy. All of them have reached a short-term overbought condition where a pullback is probably overdue. The PowerShares QQQ is meeting resistance at its old high. Let's start there.
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Chart 1
POWERSHARES QQQ IS MEETING RESISTANCE AT OLD HIGH ... Yesterday's message pointed out the the next important test for the market would be a retest of its old high by the PowerShares QQQ (which represents the Nasdaq 100 Index that has been driven higher by a strong technology sector). The daily bars in Chart 2 show the QQQ pulling back today from its January intra-day high at 170.95. That's a logical chart spot for the QQQ to run into some profit-taking. Since it's been leading the rest of the market higher, that also suggests profit-taking in the rest of the market. I also pointed out yesterday that volume hasn't keep pace with price gains over the last couple of weeks. That might also suggest that the stock rebound is due for a pullback of some sort. Initial chart support for the QQQ can be seen around the 164 level and its 50-day moving average (blue arrow).
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Chart 2
S&P 500 IS LOOKING OVERBOUGHT ... The hourly bars in Chart 3 also suggest that the S&P 500 may be due for a pullback. The 14-hour RSI line (top of chart) has reached overbought territory at 70 for the second time since the recent rebound began (down arrows). That's usually when rallies start to experience some selling. A positive divergence in the RSI line a couple of weeks ago helped start the stock rally (green arrow). In addition, the hourly MACD lines (below chart) are also showing a slight negative divergence (declining trendline). With the S&P 500 having regained more than two-thirds of its recent correction, a pullback from here wouldn't be too surprising. If one does occur, the green Fibonacci lines show potential underlying support levels ranging from 2700 to 2640. A pullback into that support range would be relatively normal and would keep stocks in a sideways consolidation pattern between their January highs and February lows.
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Chart 3
BOUNCING DOLLAR IS PUSHING GOLD LOWER ... Today's bounce in Treasury yields is giving the dollar a boost. Chart 4 shows the PowerShares Dollar Index Fund (UUP) moving up toward its early February high and a possible test of its 50-day average. The bouncing dollar is pushing the price of gold lower. Chart 5 shows the Gold SPDR (GLD) falling -1.3% today. The GLD is testing support at its early February low and its 50-day average. The higher dollar is causing profit-taking in other commodities.
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Chart 4
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Chart 5
EMERGING MARKETS ARE ALSO STRUGGLING ... The combination of a bouncing dollar and rising Treasury yields may be causing some profit-taking in emerging market stocks as well. The daily bars in Chart 6 show the Emerging Markets iShares (EEM) dropping today. The EEM has also retraced more than two-thirds of its recent decline. Its 14-day RSI line (top of chart) is struggling to stay over the 50 line (red circle). The key support level to watch is its 50-day average (blue line). Any drop below that line would signal more profit-taking in store. Notice here also that upside volume during its recent rebound has been less than impressive.
