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ETF Blog 4-27: SPY Is Breaking Out Of A Triple-Top

Market Moving News (Summary of 9 Articles)

The economy is weaker: The national activity index fell steeply to minus 0.42 vs. an already weak and downwardly revised minus 0.18 in February. And the first quarter as a whole was also weak, reflected in the 3-month average which came in at minus 0.27. The production component, also at minus 0.27, pulled down the index the most in March.

Housing is getting stronger: Mortgage applications were up 5.0% in the April 17 week, the 4th increase in five weeks. Interest rates were down 4 basis points in the week to an average 3.83% and refinancing demand was up 1.0% in the week. FHFA house prices gained 0.7% in February, compared to 0.3% in January. The year-ago rate came in at 5.4%, compared to 5.1% the month before. Existing home sales surged 6.1% in March to a 5.190 million annual rate. In percentage terms, the gain is the strongest since December 2010. The median price was up a 5.1% to $212,100 and up 7.8% annualized. Inventory in March was 2.0 million vs 1.9 million in February, but is tight relative to sales, at 4.6 months vs 4.7 months in the prior month. More new homes actually came onto the market in March, up 4,000 to 213,000 nationwide, but new home sales dropped 11.4% to a 481,000 annual rate. The median price fell 1.5% to $277,400. Year-on-year, the median price is down 1.7% while sales are up 19.4%, a discrepancy that suggests price discounting by builders.

Jobs data is mixed: Initial claims were little changed in the April 18 week, up 1,000 to 295,000. The 4-week average, at 284,500, was up more than 20,000. Continuing claims for the April 11 week rose 50,000 to 2.325 million but the 4-week average is down 22,000 to a new 15-year low of 2.309 million and down 99,000 from the month ago comparison.

Manufacturing is weaker: the PMI flash came in at a weak 54.2, from weakness in export demand and strength in the dollar. New export orders show their first decline in this report since November 2014. New orders overall are growing at their softest rate since January. Production had the softest growth rate since December.

Sentiment

Consumer confidence retreated as the Bloomberg Consumer Comfort Index fell to a five-week low of 45.4 in the period ended April 19 from 46.6. Sentiment of those earning less than $50,000 a year was the weakest in almost two months, while those at the highest end of the income scale were the most upbeat since August 2007. Even with last week's decline, the sentiment gauge remains well above last year's average of 36.7, which was the best since 2007. The measure of personal finances fell to a six-week low of 56 from 58.4. A gauge of the buying climate, showing whether this is a good time to purchase goods and services, decreased to 42.5 from 43.7 the prior week, while the index of views on the state of the economy were little changed.

The Market

The S&P500 closed at a new all-time high above the triple-top near 211. The pattern is a bullish ascending right triangle. This resistance level has been hard to penetrate, but the higher lows suggest that the breakout could happen next week.

Small Caps

The small caps (NYSEARCA:IWM) show the same pattern; however they were weak on Friday and volume fell during the week, suggesting that the broader market is weaker than the big names that came out with earnings news last week.

Core Sectors

The core sector ETF's were mostly flat during the last 21 days, and small caps continue to beat the majority of the group. Emerging markets (NYSEARCA:EEM) and energy (NYSEARCA:XLE) are much stronger than IWM and technology (NYSEARCA:XLK) is moving up in relative strength.

Best Relative Strength

Of the 36 funds I follow, the standouts, beating IWM (horizontal red line) during the last 21 days are, in order: EWZ, TAN, OIH, SOCL, IBB, XLE, IGV, and PJP.

Trades Last Week

Sold: SMH, Bought: PANW, holding TAN, PANW.

PANW is a cybersecurity stock; the corresponding ETF is HACK.

Conclusion and Action

The economic news continues weaker and mixed, and housing improving and jobs unchanged. Earnings were somewhat mixed, but blowouts in AMZN, GOOG, and some large banks, influenced the market. There is still some unease on Greece, but EEM and EWZ are strong.

Technically, the market is in a bullish ascending right triangle that suggests the market could move sharply higher. The SPY closed just above the triple top on Friday; however there may still be resistance at this level that reduces my guess of the probability of a breakout. AAPL could initiate a move on Tuesday, if as usually, they score an earnings beat.

My plan is to buy IWM on a breakout and take a chance with HACK if it continues higher.

Have a great week!

Disclosure: The author is long TAN, PANW.