Art's Charts

SPY and QQQ Reach New Highs, but IWM Remains Range Bound

With another strong close and leadership from large-cap tech stocks, SPY and QQQ extended their uptrends and there is no change in the overall picture. Stocks remain overbought and ripe for a corrective period, which could form as a pullback or a flat consolidation. As noted last week, many pundits are looking for this correction, perhaps too many. In contrast to SPY and QQQ, small-caps have undergone a corrective period the last four weeks as IWM trades in a sideways range. Even though IWM is underperforming, it has yet to actually break down and show absolute weakness. On the S&P 500 ETF (SPY) chart, the ETF bounced off the trendline extending up from 20-Dec and closed above 137 on Monday and Tuesday. Simply put, we have yet to see any major support breaks or signs of significant selling pressure. SPY continues to record new highs. The 11-week trendline extending up from 19-Dec marks first support around 136 and last week’s lows mark key support at 134. RSI support remains at 40.

Oil Corrects, Treasuries Extend Surge and Stocks Hold Uptrends

The warning signs persist, but stocks remain in clear uptrends and selling pressure remains muted. First, recent strength in treasuries is a concern because they are negatively correlated with stocks. Second, the major index ETFs are overextended and ripe for a pullback or consolidation. Third, small-caps have been underperforming since early February. On the S&P 500 ETF (SPY) chart, the ETF bounced off the trendline extending up from 20-Dec and closed above 137 on Monday. Even though the advance has slowed in recent weeks, there is clearly no reversal or signs of significant selling pressure. The trendline marks first support at 136 and last week’s lows mark key support at 134. RSI support remains at 40.

Charts of Interest: ADP, KR, LLY, STT, TSN

KR Confirms Harami with High Volume Surge.
STT Challenges Triangle Trendline.
TSN Firms at the 50% Retracement Line.
Plus ADP and LLY.











This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.

Treasuries Bounce Along with Oil and Stocks

It was a rather strange week on the intermarket front. Stocks and oil moved higher, which is normal. However, treasuries also moved higher, which is not normal. Strength in stocks and oil should be offset by weakness in treasuries. Strength in treasuries could signal that some traders are taking a more defensive stance, as stocks remain quite overbought. Also note that small-caps are still underperforming because the Russell 2000 ETF (IWM) remains below its 3-Feb high and stuck in a trading range. In contrast, SPY and QQQ moved above their corresponding high. The warning signs continue, but we have yet to see any kind of breakdown on the price charts or sustained selling pressure. On the S&P 500 ETF (SPY) chart, the lows of the last two weeks turn into the first support zone around 134-135. RSI continues to hold its bull zone (40-80). A break below 134 in SPY and 40 in RSI would reverse the current uptrend, which is now entering its 11th week. As noted last week, be careful with the first support break because pent-up demand could trigger a decent bounce in the first pullback.

NYSE AD Line Hits New High and Sector BPIs Remain Strong

Unsurprisingly, there is no change in the indicator summary as stocks held their gains this week. Trading turned a little more indecisive, but we have yet to see any signs of significant selling pressure. The NYSE AD Line hit another new 52-week high this week, the AD Volume Lines remain in clear uptrends and new highs continue to outpace new lows. The only potential negative is that stocks are overbought and ripe for a corrective period. However, as we have seen the last few weeks, stocks can become overbought and remain overbought.

Stocks Maintian Uptrends Even as Treasuries Bounce

There are no major changes on the charts. However, yesterday was a bit strange because both treasuries and stocks moved higher. The 7-10 year T-Bond ETF (IEF) was up .14% and the S&P 500 ETF (SPY) was up .44%. Despite a day astray, stocks remains in clear uptrends and treasuries remain in clear downtrends. On the S&P 500 ETF (SPY) chart, broken resistance and the 3-Feb gap turn into the first support zone around 133-134. This level held the last two weeks as SPY edged higher with a zigzag above 136. RSI moved above 60 on 19-Dec and has held its bull zone (40-80) for nine weeks. This uptrend remains in place until SPY breaks 133 and RSI breaks 40.

Stocks Stall, but Refuse to Buckle - Gold Holds Breakout

Stocks edged lower on Wednesday as commodities moved higher. There is generally a positive correlation between stocks and commodities, including gold. The Dollar and commodities are generally negatively correlated, as are stocks and treasures. Even though intermarket relationships are important, my first focus is on the individual price charts because intermarket relationships can go astray from time to time. While many view gold as a safe-haven, it is also a currency alternative and many of the world’s largest central banks are printing money. The Fed, Bank of England, the European Central Bank (ECB) and the Bank of Japan are all involved in quantitative easing of some sort. This dilutes their currencies and gives rise to currency alternatives, such as gold. With interest rates low, this liquidity is also fueling a rise in the equity markets. Yes, it is a classic liquidity rally. How long or far it will last is anyone’s guess. We simply need to watch the actual price charts for clues.

Turning to equities, stocks are certainly overbought and ripe for a correction, but we have yet to see any signs of significant selling pressure. Everyone is talking about the coming correction, but not enough people are actually selling. This means we may need some sort of blow-off top or buying climax to get pundits, off the correction subject. Short-term, broken resistance and the 3-Feb gap turn into the first support zone around 133-134. This level held the last two weeks as SPY edged higher with a zigzag above 136. RSI moved above 60 on 19-Dec and has held its bull zone (40-80) for nine weeks. This uptrend remains in place until SPY breaks 133 and RSI breaks 40.

Charts of Interest: ABX, BA, GFI, GOOG, ORCL

Bollinger Bands Narrow for BA as Ascending Triangle Forms.
GFI Firms at Key Retracement.
GOOG Forms Harami at Resistance.
Plus ABX and ORCL.

IWM Underperforms, GLD Breaks Out and UUP Hits Retracement

Even though the major index ETFs remain in uptrends, signs of weakness are emerging under the hood and stocks are ripe for a corrective period. First, small-caps continue to show relative weakness since 3-Feb, which is when IWM peaked. Second, sentiment remains overtly bullish as the 10-day SMA of the CBOE Total Put/Call Ratio ($CPC) moved to levels not seen since April 2011. Third, stocks are overbought after a sharp advance the last 9-10 weeks. Short-term, I think the time for new long positions has past, however, it may still be too early to consider short positions. While a support break would reverse the uptrend, be careful because those who missed the rally could take advantage of the first dip. On the SPY chart, broken resistance and the 3-Feb gap turn into the first support zone around 133-134. This level held the last two weeks as SPY edged higher with a zigzag above 136. RSI moved above 60 on 19-Dec and has held its bull zone (40-80) for nine weeks. This uptrend remains in place until SPY breaks 133 and RSI breaks 40.




 

 
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With oil surging, gold breaking out, and stocks trading near their highs for the year, it is little wonder that treasuries are weak. Overall, the 20+ Year T-Bond ETF (TLT) remains in a downtrend since 19-Dec with a big zigzag lower. There is perhaps support in the 115 area from the lows since late January. Also notice that the 10-year Treasury Yield ($TNX) is running into possible resistance near 2.07% (20.7 on the chart). Weakness in oil, stocks and the Euro is likely needed for a sustainable advance in treasuries. Key resistance remains at 118.5 for now.



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Even though the Euro surged over the last two days, I was not that impressed with the move. EU finance ministers approved a 116 billion Euro package for Greece to make its 14.5 billion Euro bond payment on 20-March. Greece’s total debt amounts to around 350 billion Euros. While I do not know all the details, it seems that 130 billion Euros will buy quite a bit of time for Greece. Even so, the Euro could remain under pressure because the European Central Bank (ECB) is doing its version of quantitative easing and the next LTRO round is scheduled for 29-Feb. This dilutes the Euro and will likely put a cap on any gains in the currency. Moreover, the European Central Bank (ECB) would rather see a weak Euro to stimulate export growth and the EU economy. On the price chart, the US Dollar Fund (UUP) remains above its early February low as the current decline retraced 61.80% of the prior surge. Also notice that RSI is trading in the 40-50 zone, which marks support in an uptrend. A higher low and break above 22.15 would be bullish and argue for an extension of the bigger uptrends on the daily and weekly charts.



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No change. Oil continues to surge with Brent Crude leading the global charge. The US Oil Fund (USO) broke resistance with a surge from 36.75 to 40.75 over the last three weeks. Oil is playing catch up with the stock market and also getting overbought, especially for the short-term. Note that the decline from early January to early February looks like a falling flag on the daily chart. The breakout at 38.50 signals a continuation of the December advance and broken resistance turns first support. RSI support is set at 40.


 
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Gold has spoken with a surge above 170 and a falling flag breakout. After a 3-4 week correction, this move signals a continuation of the prior advance, which began in late January, or perhaps even in late December. Either way, the breakout point to higher prices for bullion. The move reinforces key support at 166. Broken resistance in the 169-170 area turns into the first support zone. The only concern here is that a breakout in the Dollar could de-rail the breakout in gold.



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Key Economic Reports:                                           

Wed - Feb 22 - 07:00 - MBA Mortgage Index        
Wed - Feb 22 - 10:00 - Existing Home Sales    
Thu - Feb 23 - 08:30 - Jobless Claims        
Thu - Feb 23 - 11:00 - Oil Inventories    
Fri - Feb 24 - 09:55 - Michigan Sentiment
Fri - Feb 24 - 10:00 - New Home Sales
Wed - Feb 29 – 08:00 - Second LTRO round for EU Banks
Wed – Feb 29 – 08:00 – Italian bond auction

Charts of Interest:    Tuesday and Thursday in separate post. 

This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.

SPY Uptrend Enters 10th Week

Stocks have been overbought for weeks, but the uptrend just keeps extending. SPY is a classic example of an index ETF becoming overbought and remaining overbought. The ETF broke resistance on 19-Dec to start the current uptrend, which is some nine weeks old. SPY was up over 7% in mid January, which could be considered overbought. However, SPY just continued to march higher and is now up over 12% in nine weeks. Even though the ETF is still overbought and ripe for a correction, we have yet to see a support break or sustained selling pressure. Broken resistance and the 3-Feb gap turn into the first support zone around 133-134. This level held the last two weeks as SPY edged higher with a zigzag above 136. RSI moved above 60 on 19-Dec and has held its bull zone (40-80) for nine weeks. This uptrend remains in place until SPY breaks 133 and RSI breaks 40.