Stocks moved higher on Thursday with another lopsided advance. The Russell 2000 ETF gained around 1%, but the S&P 500 SPDR gained just .30%. Small-caps led and large-caps lagged. Eight of the nine sectors were higher with the consumer discretionary and finance sectors leading. Homebuilders contributed to relative strength in the consumer discretionary sector as the Home Construction iShares (ITB) surged 1.82%. Also note that the Retail SPDR (XRT) rebounded with a 1.07% gain. As the chart below shows, ITB remains in a downtrend, but this downtrend has slowed as the ETF bounces around the 23.25 area the last six weeks. There was a three day bounce in early May that failed and a two day bounce in mid May that failed. Here we are again with another two day bounce. Two things need to happen for a convincing trend reversal. First, a follow through break above resistance at 24.25. Second, a price relative break above the late April high (red line).
**This chart analysis is for educational purposes only, and should not
be construed as a recommendation to buy, sell or sell-short said securities**
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No change. SPY bounced off the support zone to keep the zigzag advance alive. This move reinforces support in the 186-187 area. Even though the overall uptrend is still in place, SPY is underperforming TLT and small-caps continued to weigh on the market overall. A break below support at 186 would reverse the short-term upswing and signal that large-caps are coming under selling pressure.
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QQQ moved above last week's high to extend its uptrend. This clearly keeps the zigzag advance alive. The mid May low and late April trend line combine to mark key support in the 86.5-87 area. The indicator window shows the price relative breaking out early this week and edging higher as QQQ outperforms SPY.
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IWM is doing its best to keep the bear trap alive and hold support in the 108.5 area (green zone). The ETF bounced back above 110 on Thursday and led the market. A follow through break above Monday's high and the March trend line would be quite positive. Key resistance remains in the 113 area for now. The price relative flattened over the last few days as IWM performed in line with SPY. A breakout here would also be positive.
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No change. The 20+ YR T-Bond ETF (TLT) fell sharply and this facilitated a rally in the Russell 2000 and Nasdaq. The trend remains up as TLT rises within a channel since early April. Note that this channel is slightly steeper than the channel from mid March to mid April. The lower trend line, mid May low and a buffer combine to mark a support zone in the 110-111 area.
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No change. The US Dollar ETF (UUP) continued higher and broke above the late April highs. The bear trap provided the first sign of a trend reversal and this follow through breakout signals the start of an uptrend. Dollar strength is built on Euro weakness as the Euro Index ($XEU) broke support with a sharp decline over the last few days.
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No change. The USO Oil Fund (USO) continued its advance with a move to 37.50 on Monday. Note that USO broke channel resistance in early May and this signaled a continuation of the prior advance (mid March to mid April). The May trend line, broken resistance and a buffer combine to mark key support in the 36.5-36.75 area.
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No change. Gold could not breakout with tensions in Ukraine and must now contend with a strengthening Dollar. The Gold SPDR (GLD) remains with a descending triangle, which is a bearish continuation pattern. The lower high in early May indicates that buying pressure was not strong enough to trigger a breakout or upside follow through to the bounce. The relatively equal lows represent the demand line. A break here would signal a victory for supply and target a move to the 118 area.
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Key Reports and Events (all times Eastern):
Fri - May 23 - 10:00 - New Home Sales
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.
