BOLLINGER BANDS CONTRACT ON THE DOW - CUP-WITH-HANDLE FOR NY COMPOSITE - SMH CONSOLIDATES AFTER SURGE - INTEL DRAGS SMH DOWN - NVIDIA AND AMD COUNTER INTEL - BROADCOM AND XILINX HIT NEW HIGHS - AGRICULTURE ETF BOUNCES TO RESISTANCE
BOLLINGER BANDS CONTRACT ON THE DOW... Link for todays video. The Fed met expectations by leaving rates and policy unchanged on Wednesday. In its policy statement, the FOMC made note of the usual suspects. While the Fed was positive on parts of the economy, continued weakness in the labor market meant rates would remain low for an extended period. The Fed also said it would end quantitative easing in March. Stocks were up ahead of the Fed statement, but fell afterwards and ended the day mixed. Chart 1 shows the Dow Industrials popping on the open and dropping in the late afternoon. Chart 2 shows that the overall trend remains up as the Dow extends its 5-week consolidation. Notice that the Dow first moved above 10400 on November 16th. Since then the Dow has crossed this level at least six times. Support at 10200 holds on each pullback, while resistance around 10500 holds on each bounce. It is a trading range within an uptrend. While a break below 10200 would be negative, I do not think it would be enough to fully reverse the uptrend on the daily chart. Trendline support comes in just above 10000 and the Dow has yet to forge a lower low, much less a lower high.
Chart 1
Chart 2
The pink lines show Bollinger Bands. The middle line is the 20-day simple moving average. The upper line is two standard deviations above the 20-day SMA and the lower line is two standard deviations below the 20-day SMA. The bottom indicator window shows Bollinger Band Width, which measures the distance between the upper and lower bands. Bollinger Bands are narrowing as this trading range progresses. John Bollinger theorized that volatility contractions were followed by volatility expansions. Bollinger Bands do not give us directional clues, they just tell us to be ready for a move.
CUP-WITH-HANDLE PATTERN FOR THE NY COMPOSITE ... Chart 3 shows the NY Composite consolidating near resistance from the October-November-December highs. First and foremost, the overall trend is up on this chart. Second, the stock surged above 7000 in the first part of November and then stalled. These gains are largely holding as the Nasdaq trades between 7000 and 7300. Overall, the pattern looks like a bullish cup-with-handle. This pattern was made popular by William ONeal of Daily Graphs and IBD. The cup-with-handle forms as a continuation pattern within an uptrend. A break above rim resistance, which is also the handle consolidation, would signal a continuation higher.
Chart 3
SMH CONSOLIDATES AFTER SURGE... After a big surge in early December, the Semiconductors HOLDRS (SMH) consolidated around 27 the last eight days. Chart 4 shows SMH breaking above its Sep-Nov highs and recording a new 52-week high this month. Since making this new high, SMH moved into a tight trading range. Despite this stall, the new 52-week high affirms the overall uptrend. SMH is also showing some relative strength. The bottom indicator window shows SMH with the S&P 500 (red). SPX is still battling around its mid November closing highs, but SMH is trading above its mid November highs.
Chart 4
Intel (INTC), the biggest component in the Semiconductors HOLDRS, fell sharply on news of a FTC lawsuit for abusing market dominance. Chart 5 shows Intel hitting resistance in the 20.5-21 area for the fourth time since late August. The stock declined from resistance over the last eight days and is currently in the middle of a 4-5 month trading range.
Chart 5
Other stocks of the Semiconductors HOLDRS made up for losses in Intel. Chart 6 shows Nvidia (NVDA) surging to a new 52-week high on expanding volume. Chart 7 shows AMD also hitting a new 52-week high on above average volume. Both benefited from the Intel news today, but there were in well established advances prior to todays move.
Chart 6
Chart 7
Elsewhere in the semiconductor space, chart 8 shows Broadcom (BRCM) breaking its Sep-Oct highs with good volume. Chart 9 shows Xilinx (XLNX) also breaking its Sep-Oct highs with good volume. While these new 52-week highs affirm the current uptrends and show relative strength, keep in mind that these stocks are up sharply from their early November lows and will likely pullback at some point.
Chart 8
Chart 9
DB AGRICULTURE ETF BOUNCES TO RESISTANCE... Chart 10 shows the DB Agriculture ETF (DBA) holding its triangle breakout and forming another triangle. DBA broke resistance around 25.6 with a surge in October. The broken resistance zone turned into a support zone as another triangle took shape over the last two months. With an advance over the last five days, DBA is challenging triangle resistance and another breakout here would affirm the uptrend. The early June high marks the next resistance zone around 28-29.
Chart 10
OIL GETS OVERSOLD BOUNCE... Chart 11 shows the US Oil Fund ETF (USO) getting an oversold bounce above 36. Admittedly, this chart remains a tough call right now. As I see it, USO has higher lows working in July, September and now December. Throw in higher highs in June and October, and one could call the overall trend up with a rising price channel. The trouble started with the support break at 38. USO was correcting in orderly fashion, but failed to hold support at 38 and broke down with a sharp decline. Broken support around 38 now turns into resistance (again). This could be just an oversold bounce back to broken support.
Chart 11
Predicting oil may require some insight on stocks and the Dollar, which will likely influence oil. The indicator window shows oil with the Dollar (green) and stocks (red). The green dotted line marks the July bottom in the S&P 500. Stocks advanced and the Dollar declined from early July to early December. This helped oil and USO is still trading above its July low. Oil would benefit from strength in stocks and weakness in the Dollar. However, as John Murphy has pointed out in recent days, the Dollar looks like it put in a bottom and may be set to rise for a while.
GOLD FINDS SUPPORT AT FIB RETRACEMENT ... Chart 12 shows the Gold ETF (GLD) firming near the 38% retracement mark. After a sharp advance in November, GLD corrected rather hard in December with a sharp decline to around 110. The advance was going parabolic so some sort of correction was expected. Now it is time to apply the Fibonacci Retracements Tool and a trendline to determine the first support level. By extending the Fibonacci Retracements Tool from the August low to the December high, one can see three retracements of 38%, 50% and 62%. The first and last retracements are based on actual Fibonacci numbers. The 38% retracement marks the first potential support level around 108.56. I also drew a trendline extending up from the August low and its extension marks support just above 108. Taken together, it looks like the first support level to watch resides around 108-109. Even more so than oil, the future of gold is likely tied to the future of the Dollar. Note: You can show/hide the actual level by holding the CTRL button while clicking the top or bottom lines of the Fibonacci Retracements Tool.
Chart 12
