Video and Report Headlines
- Bull Market Sequence
- 4wk High-Low Percent Remains Bullish
- SPY and QQQ Maintain Stair-Step Advance
- TLT Turns Down as 10Yr Yield Surges
- Copper Holds Breakout
- Uranium Breaks Short-term Resistance
- Biotech SPDR Returns to Breakout Zone
- Vertex Reverses Downswing within Bigger Pattern
- Regeneron Consolidates with Uptrend
The next Chart Trader will be posted on Thursday morning, April 4th.
The weight of the evidence is bullish for the long-term and the short-term. Long-term, the Composite Breadth Model is positive. Short-term, 4wk High-Low Percent for the S&P 500 and Nasdaq 100 remains net bullish, while SPY and QQQ continue to stair-step higher. Stocks are overdue for a corrective period, but we have yet to get the short-term triggers to actually signal a correction. These are outlined below. I am also watching the bond market as the 10-yr Treasury Yield surged yesterday. A sharp move higher in the 10yr could be the catalyst for a correction in stocks.
Bull Market Sequence
The weight of the evidence is bullish for stocks. The chart below shows the bullish sequence starting with the Zweig Breadth Thrust on November 3rd. See the ZBT1500 Thrust in the middle window. The green arrows on the price chart mark ZBT1500 breadth thrust over the last three years. SPY broke out of its falling channel (red lines) a week after the ZBT Breadth Thrust and also moved above the upper Keltner Channel for a volatility breakout (blue arrow). The Composite Breadth Model (bottom window), which has 14 breadth indicators, then turned bullish on December 7th with a move to +1. The weight of the evidence remains bullish, but there can still be corrections and pullbacks along the way.
Links: Zweig Breadth Thrust [7] and Composite Breadth Model [3]
4wk High-Low Percent Remains Bullish
The next chart shows the 4-wk High-Low Percent indicators for the S&P 500, Nasdaq 100, S&P MidCap 400 and S&P SmallCap 600. I am only focused on the S&P 500 and Nasdaq 100 for signals (see explanation below the chart). The green and red arrows on the chart show the signals, and the current signal is bullish (since November 2nd). SPX 4wk High-Low Percent exceeded +35% twice last week (green bars) and this shows broad strength within the index. NDX 4wk High-Low Percent is lagging lately and did not make it back above +20% last week. Notice that MID 4-wk High-Low Percent and SML 4wk High-Low Percent exceeded +20% last week (green ovals). This indicates that the advance is broadening to mid-caps and small-caps.
About the Indicators: 4-wk High-Low Percent is the percentage of 4-week highs less the percentage of 4-wk lows within an index. These indicators turn bullish with a move above +20% (green bars) and bearish with a move below -20% (red bars). I am only focused on the S&P 500 and Nasdaq 100 for signals. The green shading on the chart above shows the active bullish signals for the S&P 500 and Nasdaq 100. The red shading shows the active bearish signals. The green arrows on the price chart show when 4-week High-Low Percent is bullish for both the S&P 500 and Nasdaq 100. This means BOTH must be bullish to signal a short-term uptrend in SPY. A downtrend signal triggers when BOTH are bearish.
SPY and QQQ Maintain Stair-Step Advance
SPY continues to stair-step higher with short pullbacks followed by new highs. Overall, SPY was up 27.4% over the 103 day period from 27-October to 27-March. The red lines show the ATR Trailing Stop (3 x ATR(22)). This ATR Trailing Stop started in early November and held throughout the short-term uptrend, which means pullbacks were less than 3 ATR(22) values. A close below this line (510.26) would signal a pullback that is more than 3 ATR(22) values. This would be deemed an outsized decline and show the most selling pressure since October. This could also signal the start of a corrective period. Notice that SPY experienced an outsized decline on August 9th (3 ATR drop) and this signaled the start of a correction.
QQQ hit a new high in late February and then formed a pennant consolidation. Led by GOOGL, QQQ broke out with a surge on March 20th and this breakout is holding. For the short-term uptrend, I am also using the ATR Trailing Stop (3 x ATR(22)) to define the short-term uptrend in QQQ. QQQ broke this line in early January and then surged to a new high. This line then held in February and March. A close below 429.59 would signal and outsized decline and show the most selling pressure since early January.
The weight of the short-term evidence is bullish and I am watching four items for signs of a short-term reversal. These are 4-wk High-Low Percent for SPX and NDX, as well as the ATR Trailing Stops for SPY and QQQ. The short-term environment would turn bearish should all four trigger. Until then, the weight of the evidence remains bullish for the short-term.
10-Yr Yield Surges as TLT Turns Down
The 10-yr Treasury Yield is one of these items that does not matter, until it does. Others include sentiment (AAII bulls/bears), the Volatility Index ($VIX), Seasonality and so-called overbought conditions. Seasonal patterns were negative from mid February to mid March, but the S&P 500 marched higher. The chart below shows AAII bulls hitting 50% or higher (blue shading) five times since November. AAII bears moved below 30% in early November and stayed below 30% for 21 weeks (green shading). The VIX has been below 15% for 21 weeks as well (magenta). There are not very many bears and the VIX remains subdued. Contrarians would view lows levels of bearishness as bullish and a low VIX as complacency. The reality is that these indicators are not good for timing bearish reversals.
The next chart shows the 10-yr Treasury Yield Surging from 1.5% in January 2022 to 4.2% in October 2022. The S&P 500 fell during this period and hit a new low in October 2022. The S&P 500 is up substantially since this low and the 10-yr Treasury Yield continues to rise, albeit at a slower pace. The green dashed lines mark a rising channel (long-term uptrend). The 10yr Yield fell sharply into December and then worked its way higher in 2024 (hugging the 40-wk SMA). The short-term trend is up here in 2024 and this calls for a move towards the upper line of the rising channel (5.5%). Stocks are not concerned with rising yields right now. The pace of the rise is what matters for stocks. A sharp rise in the 10-yr could be negative for the S&P 500. The green arrows show sharp rises in the 10-yr and the red arrows show declines in the S&P 500.
The next chart shows the 20+ Yr Treasury Bond ETF (TLT) in a long-term downtrend with a 52-week low in October 2023. TLT surge in November-December with a move to 100 and then fell in 2024. TLT is back below its falling 40-week SMA and the short-term trend is also down. A falling wedge could be forming (blue lines), but the short-term trend is down as long as the wedge falls. A weekly close above 96 would break wedge resistance. Until then, the long-term and short-term downtrends argue for lower prices.
Chart Analysis, Setups and Trading Ideas
Copper Holds Breakout
The weekly chart below shows the Copper ETF (CPER) with a 37% advance from July 2022 to January 2023. CPER then embarked on an extended correction as a triangle formed in 2023. The ETF broke out of this triangle with a 6% surge in mid March and this signals a continuation of the 37% surge. The green dashed lines mark a possible rising channel with the upper line reaching the low 30’s in the coming months. The red line is the 40-week SMA and I would use this as the initial re-evaluation level. A close below this long-term moving average would negate this breakout.
Uranium Breaks Short-term Resistance
The next weekly chart shows the Uranium ETF (URA) within a long-term uptrend. URA is above its rising 40-week SMA and recorded 52-week highs earlier this year. The ETF pulled back in February with a dip toward the 40-week SMA. A falling flag of sorts formed and URA broke out with a surge the last three weeks. This breakout reverses the short-term downtrend (correction) and argues for a continuation of the long-term uptrend.
Biotech SPDR Returns to Breakout Zone
The next weekly chart shows the Biotech SPDR (XBI) with an extended double bottom and a breakout earlier this year. This breakout forged a 52-week high and this means the long-term trend is up. The blue shading marks the prior resistance zone and this zone turns into first support. XBI fell back to this zone in March and then firmed the last three weeks. I view this pullback to the breakout zone as a throwback that offers a second chance to partake in the breakout. XBI established short-term resistance with a high at 96 and a breakout here would be short-term bullish.
Vertex Reverses Downswing within Bigger Pattern
The next chart shows daily candlesticks for Vertex Pharmaceuticals (VRTX). First, the long-term trend is up as the stock surged to a 52-week high earlier this year. Second, the stock corrected with a falling wedge over the last two months. I view this falling wedge as a correction and consider it a bullish continuation pattern. A breakout in the 435 area would be bullish. Chartists looking for the jump on a breakout can watch the swings within the pattern (red and green arrows). The swing was down into mid March and VRTX broke short-term resistance last week. This means the short-term swing is up and this increases the odds for a bigger breakout. A close below 410 would call for a re-evaluation.
Regeneron Consolidates within Uptrend
The next chart shows daily candlesticks for Regeneron (REGN). The stock surged 29% from late October to late February and hit 52-week highs during this advance. REGN corrected in March with a small falling wedge, which can also be considered as a pennant. This is a short-term bullish continuation pattern that represents a rest after a sharp advance. It can be the pause that refreshes. A breakout at 980 would be bullish and signal a continuation higher. Upon a breakout, I would mark initial re-evaluation support at 953 (green line).
