***Position Summary***
Retails sales stunk up the place, but retail stocks recovered after a weak open. In addition, the market got good guidance from Wal-Mart, jobless claims actually fell and an upgrade in the chip sector sparked a tech rally. I was surprised by the positive reaction from the retail group. While I was not impressed with market breadth or volume, renewed relative strength in techs and the ability to advance on bad news is quite positive.
Earnings season remains in full gear and this is likely to increase volatility. General Electric reports before the open and this will influence large-caps. In addition, consumer sentiment is due around 10AM and this could influence the Consumer Discretionary sector. GE is up around 15% from its March lows and it looks like some good news is already priced into the stock. In addition, the stock hit resistance at its 62% retracement mark. GE is the third largest stock by market cap and is one of the most diverse companies in the world. It is a good proxy for the US and world economy. Let's see if it can deliver for the bulls.
The short-term trends for QQQQ, SPY and IWM remain down, but all three bounced yesterday. QQQQ almost broke short-term resistance, while IWM and SPY fell short. I remain short SPY, but will anxiously wait for the GE report, which could make-or-break this position. The stop-loss remains at 137.15. Should the market surge above this level in the first 10minutes, I will reset the stop-loss 10 cents above the high of the first 30 minutes. This is just to avoid a gap that does not hold. My stop-loss for the long position in the ProShares UltraShort Consumer Services ETF (SCC) remains at 84.8. I will also put out a second video today to cover some stock setups.
Market moving events for the next five trading days: -
- Friday: Consumer Sentiment
-Earnings: General Electric (GE) - Monday: Retail Sales, Business Inventories
-Earnings: Charles Schwab (SCHW), JB Hunt (JBHT) - Tuesday: Producer Price Index (PPI)
-Earnings: State Street (STT), Intel (INTC) - Wednesday: Crude Inventories, Industrial Production
-Earnings: Wells Fargo (WFC), eBay (EBAY) - Thursday: Jobless Claims, Leading Indicators
-Earnings: Sandisk (SNDK), Capital One (COF)
A Video Addition to today's commentary will be posted around 7:00AM ET - click here.
The Stock Setups page is updated on Tuesdays and Fridays - click here.
***Technical Highlights***
***Low Interest Bounce*** The stock market bounced yesterday with semis and retailers leading the way. This means that the Technology and Consumer Discretionary sectors were also strong. On the face of it, this is bullish and healthy for the market overall. However, volume was below average on the NYSE and just average on the Nasdaq.
QQQQ breadth was strong, but no overwhelmingly so. AD Net% ended at +62% and AD Volume Net% ended at +65%. Well below the +90% threshold required for a really strong rally. SPY breadth was much weaker and more indicative of a weak advance. AD Net% finished at +19% and AD Volume Net% ended at +30%. Even though all the major index ETFs finished with gains on the day, I did not see much confidence in the breadth and volume stats.
***Battling Resistance*** Even with yesterday's bounce, there is no real change for QQQQ, SPY and IWM on the daily charts. The March-April advance retraced 38-50% of the December-March decline. Corrective advances or counter-trend rallies typically retrace 38-62% of the prior decline. A 50% retracement (R50%) is in the middle. In addition to this key retracement area, the ETFs are also hitting resistance from their February highs. QQQQ edged above its February high and shows the most strength. IWM and SPY fell just short of their February highs and could not keep up with QQQQ. With all three well above their March lows and meeting resistance, there appears to be more downside risk than upside potential.
  gifs/d0411_spyd.gif
***Just a Bounce or More?*** On the 60-minute charts, QQQQ, SPY and IWM surged in the first two hours and then traded flat. On the bullish side, the surge broke the wedge/flag trendline and the early gains held throughout the day. On the bearish side, there was no follow through after the initial surge and resistance levels remain. QQQQ surged to resistance, while IWM and SPY fell short of resistance. As far as I am concerned, all three need a breakout to validate this move. QQQQ clearly shows the most relative strength right now.
  gifs/d0411_spyi.gif
***Semis Surge*** Love them one day and hate them the next. Traders just are not sure what to do with the semis. After breaking out in early April, the Semiconductor HOLDRS (SMH) gapped down on Tuesday and I invalidated this breakout. However, a group upgrade to overweight from Bank of America spurred buying the last two days and the breakout is back on. SMH is trading above its February highs and this means it is one of the stronger tech groups. Leadership from chips is positive for the Technology sector overall and a healthy Technology sector is positive for the market overall. Let's see if this breakout holds.
 
The second chart shows the Semiconductor PowerShares (PSI) in a rising price channel. PSI is a more diverse ETF and the 31 components are more equally weighted. SMH consist of just 18 components with heavy weightings in Intel, Texas Instruments and Applied Materials. The blue line compares the performance of PSI to SMH and PSI is clearly outperforming SMH.
***IGN Consolidates*** The Networking iShares (IGN) surged with the market on 1-April and then consolidated the last seven days. The slight decline over the last five days looks like another small flag. A break above Wednesday's high (28.5) would signal a continuation higher and target a move to the next resistance area around 30.50. A breakout in IGN would further lift the Technology sector and possibly the market overall. Watch CSCO, QCOM, RIMM, GLW and JNPR – the top components.
***Financial Woes*** The Finance SPDR (XLF) weighed on the S&P 500 yesterday with a small loss. The Consumer Discretionary SPDR (XLY) and Technology SPDR (XLK) managed modest gains, but XLF failed to make it a troika and was noticeably absent. This has been the problem all along. The rise of one sector is at the expense of another sector. Blame low volume. There is just not enough buying pressure to lift all boats. This is also clear from the relatively weak breadth stats in SPY yesterday. Despite weakness in the Finance sector, I did notice doji and indecisive candlesticks in the key finance related ETFs. If the S&P 500 is going to make another run higher, then the Finance sector needs to participate. Yesterday's indecision could signal a short-term low. Look for follow through with a break above Wednesday's high to trigger short-term breakouts. As you can see from the charts below, possible flags formed over the last seven days and breakouts would be short-term bullish.
  gifs/d0411_rkh.gif
Good day and good trading -Arthur Hill
---------------------------------------------------------------
Click here to post a comment, suggestion or question.
Breadth Charts ---------------------------------
  gifs/d0411_iwm_br.gif
---------------------------------------------------------------
Disclaimer: Arthur Hill is not a registered investment advisor. The analysis presented is not a solicitation to buy, avoid, sell or sell short any security. Anyone using this analysis does so at his or her own risk. Arthur Hill and TD Trader assume no liability for the use of this analysis. There is no guarantee that the facts are accurate or that the analysis presented will be correct. Past performance does not guarantee future performance. Arthur Hill may have positions in the securities analyzed and these may have been taken before or after the analysis was present.
--------------------------------------------------------
about: The Daily Swing is posted every trading day around 6AM ET and focuses on short-term strategies for QQQQ, SPY and IWM. In addition, at two stock setups are featured every day with a detailed trading strategy. As warranted, coverage extends to broad market topics, key sectors and industry groups and inter-market securities (gold, bonds, the Dollar and oil).
--------------------------------------------------------
Sources: Data from Bloomberg.com, CBOT.com, Kitco.com and ino.com; Charting from Metastock (equis.com). Closing data from Reuters.com, eSignal.com, MS QuoteCenter and Yahoo! Finance.
| |
