OIL ETF BREAKS TRIANGLE - GASOLINE SURGES TO RESISTANCE - AGRICULTURE ETF BREAKS OUT - INDUSTRIAL METALS ETF CHALLENGES RESISTANCE - COMPARING ETFS AND THE UNDERLYING - HEALTHCARE SPDR AFFIRMS UPTREND - STOCKS TO WATCH (LLY, PFE, AMGN, MDT)
OIL ETF BREAKS TRIANGLE... Video Link (click here) John Murphy showed a symmetrical triangle pattern in the US Oil Fund ETF (USO) on Monday. John also said, an eventual upside breakout is likely. Chart 1 shows USO breaking above triangle resistance with a big move today. A report showing a drop in crude and gasoline supplies triggered todays buying. Oil futures hit a 52-week high today with a move above $77 per barrel. Breakouts and 52-week highs are bullish. A rising stock market and falling Dollar were both bullish for oil, but crude had yet to capitalize with a breakout, until today that is. Chart 2 shows the US Gasoline Fund ETF (UGA) with an ascending triangle. UGA is challenging resistance of this bullish continuation pattern.
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OTHER COMMODITY ETFS ON THE MOVE... Oil is not the only commodity moving higher. Chart 3 shows the Agriculture PowerShares (DBA) breaking above triangle resistance with a surge over the last four days. UGA held support in the 23.5-24 area in September and then broke above its mid September highs this month. The June high marks the next resistance zone around 28-29. Chart 4 shows the Base Metals ETF (DBB) challenging resistance from its August-September highs with an October bounce. The pattern looks like a small ascending triangle or consolidation and a breakout would signal a continuation of the uptrend.
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ETFS VERSUS THE UNDERLYING... ETF performance does not always equal the performance of the underlying security. However, ETFs do capture the general direction and the bulk of the move. Perfchart 5 shows five intermarket securities: the Dow Industrials, the 30-year Treasury Bond ($USB), the US Dollar Index ($USD), the Gold-Continuous Futures ($GOLD) and West Texas Intermediate ($WTIC). Bonds, gold and oil are based on continuous futures. This means the futures contracts are spliced together to form one continuous price series. When one contract expires, a new one takes its place. For example, when the September 2009 contract expires for West Texas Intermediate, the December 2009 contract takes its place. This is a simplified explanation. There is a clear dynamic at work this year. Stocks, oil and gold are up - and strong. All three recorded new highs for the year this week. Bonds and the Dollar are down for the year.
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Perfchart 6 shows the comparable ETFs: the Dow Diamonds (DIA), the 20+ Year Treasury ETF (TLT), the Dollar Bullish ETF (UUP), the Gold ETF (GLD) and the US Oil Fund ETF (USO). As you can see, most keep track of the underlying security pretty good. Only a few percentage points separate the returns. The major stock index ETFs (SPY,QQQQ,IWM,DIA) seem to track the underlying indices quite well. Oil sticks out like a sore thumb though. West Texas Intermediate is up over 90% the last 200-days, but the US Oil Fund ETF is up less than 30%. There is also a huge discrepancy between the performance of Natural Gas ($NATGAS) and the US Natural Gas ETF (UNG). There are many causes for the performance gap: contract rollovers, maintenance fees, structured finance. Leveraged and inverse ETFs also suffer tracking problems. The fancier the ETF, the more room for a tracking error. Keep this in mind when trading or investing in ETFs.
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XLV MAINTAINS UPTREND... The Healthcare SPDR (XLV) edged above its September high with a small gain on Thursday. Chart 8 shows XLV within a clear uptrend. After surging in mid March, the ETF has been working its way higher with a series of higher highs and higher lows. No denying the uptrend here. The blue trendline and Sep-Oct lows mark a support zone around 28. It would take a move below this support zone to reverse the uptrend. The bottom window shows XLV with the S&P 500 (red). While XLV is not keeping up with the S&P 500 in percentage terms, the price trajectory is. Both recorded new reaction highs this week and both remain in clear uptrends.
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HEALTHCARE STOCKS TO WATCH... Chart 9 shows Eli Lilly (LLY) surging off support with volume increasing over the last two days. A large triangle is taking shape and LLY appears headed for a resistance challenge. Chart 10 shows Pfizer (PFE) affirming its uptrend with a surge above 17 on huge volume the last two days. Chart 11 shows Amgen (AMGN) bouncing off support around 58 for the third time in four months. Chart 12 shows Medtronic (MDT) surging last week and forming a flag over the last six days. A break above the flag highs would be bullish.
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