IWM HOLDS DECEMBER BREAKOUT - QQQQ FORGES PRICE RELATIVE BREAKOUT - FINANCIALS START THE YEAR STRONG - REGIONAL ENTERS RETRACEMENT SUPPORT ZONE - EURO FORMS RISING FLAG - GOLD ETF ENTERS RETRACEMENT RESISTANCE ZONE
STOCKS EDGE HIGHER IN MIXED TRADING... Link for todays video. All major indices finished slightly higher on Thursday, but trading was mixed within the sectors. Four sectors were up, three were down and two were unchanged. Healthcare led the way higher with the Healthcare SPDR (XLV) recording a new 52-week high. The Industrials SPDR (XLI) and the Consumer Discretionary SPDR (XLY) finished unchanged on the day. Dont see that very often. Despite small gains in the major indices, the overall trend for stocks remains up. Chart 1 shows the Russell 2000 ETF (IWM) breaking resistance in December and holding this breakout. The advance has slowed over the last few weeks, but we have yet to see any actual weakness. After a run from 57 to 64.5 in a few weeks, the ETF is overbought and ripe for a pull back or consolidation. Broken resistance and the July trendline combine to mark support around 60.
Chart 1
Chart 2 shows the Nasdaq 100 ETF (QQQQ) breaking resistance in mid November, consolidating and then continuing higher in December. The ETF stalled over the last few weeks, but the gains are holding. Broken resistance and the consolidation lows combine to mark support around 43. The indicator window shows QQQQ relative to SPY with the price relative (QQQQ:SPY ratio). After months of performance stalemate, the price relative broke resistance in December and QQQQ is showing relative strength.
Chart 2
FINANCIALS START THE YEAR STRONG... The Financials SPDR (XLF) is having a good year so far with a triangle breakout and move above its November highs. Chart 3 shows XLF holding support around 14 and then surging above 15 in early January. Large financials are taking the proposed big bank tax quite well as XLF moved back above 15 over the last two days. Even though big financials are performing well in January, the real story may be in smaller regional banks. The bottom indicator shows XLF relative to the Regional Bank SPDR. This price relative moved higher as XLF outperformed KRE until November. More recently, XLF has been underperforming KRE as the price relative peaked in mid November and moved lower over the last two months. Turning this around, we can say that KRE (regional banks) are outperforming XLF (big banks).
Chart 3
REGIONAL BANK ETF BREAKS 2009 HIGH... The Regional Bank SPDR (KRE) is leading the market higher with a new 52-week high on Thursday. Chart 4 shows the Regional Bank SPDR (KRE) breaking wedge resistance in December and moving above its summer high this week. It is also worth noting that KRE exceeded its May 2009 high. This ETF has gone from a laggard in November to a leader in January. The indicator window shows the price relative bottoming in mid November and turning up the last few months. Combined with a new 52-week high, KRE is showing both relative strength and absolute strength. Charts 5, 6, 7 and 8 show four regional banks moving sharply higher.
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
KRE is a broad-based ETF with over 50 stocks. With each stock weighing less than 3%, no one stock dominates the ETF. It is truly representative of regional banks as an industry group. The following is a list KRE components. SharpCharts users can create a new chart list and add these symbols to see all the charts. ASBC, BOH, BOKF, BPFH, BRKL, BXS, CATY, CBU, CHCO, COLB, CVBF, CYN, EWBC, FCF, FHN, FMBI, FMER, FNB, FULT, GBCI, HBHC, HCBK, IBKC, MBFI, NPBC, OH, ONB, PACW, PFS, PNFP, PRSP, PVTB, SBIB, SBNY, SIVB, SNV, STBA, SUSQ, TCB, TCBI, TRMK, UBSI, UMBF, UMPQ, VLY, WABC, WBS, WL, WTFC, WTNY
DOLLAR EXTENDS PULLBACK... The US Dollar extended its recent decline as the DB Dollar Bullish ETF (UUP) moved below 22.8 this week. Chart 9 shows UUP hitting resistance around 23.2 in late December and moving lower the last four weeks. It looked like a falling flag was taking shape, but the UUP never broke flag resistance to reverse the fall. Even though UUP sank lower this week, the ETF is approaching retracement support as the ETF retraced 50-62% of the prior surge. If the December surge signaled the start of a multi-month advance, I would expect support sooner rather than later. The indicator window shows RSI moving into the 40-50 support zone. Notice that the 50-60 zone acted as resistance from June to November, which was during the downtrend. Should an uptrend be starting, I would expect the 40-50 zone to now act as support. Needless to say, the Dollar is in for a big test in the coming days.
Chart 9
For clues on the US Dollar Index ($USD) and the DB Dollar Bullish ETF (UUP), traders should tune into the Euro and the Euro ETF (FXE). As John Murphy has noted many times over, currencies trade in pairs. It is always the Dollar relative to the Euro and the Dollar relative to the Yen. Dollar-Euro accounts for over 40% of the US Dollar Index and the DB Dollar Bullish ETF. Chart 10 shows the Euro ETF (FXE) breaking support at 146 and broken support turning into resistance. After breaking support in December, the Euro bounced over the last few weeks. While not picture perfect, this bounce looks like a rising flag. I think the support break at 146 was medium-term bearish, but the short-term trend is up as long as the flag rises. Look for a break below 143 to signal a continuation lower in the Euro. This would be bullish for the Dollar Index and DB Dollar Bullish ETF. In the indicator window, RSI found support in the 40-50 zone from June to November. Should a medium-term downtrend be underway, I would expect RSI to hit resistance in the 50-60 zone, which is just the opposite of UUP above.
Chart 10
Charting note: I labeled the pattern as flag-esque. The slight advance over the last few weeks is not a picture perfect rising flag, but it does capture the essence of a flag. What is a bearish flag? It is a rising consolidation that forms after a sharp decline. It represents an oversold bounce or corrective advance.
GOLD ETF ENTERS RETRACEMENT ZONE... Chart 11 shows the Gold ETF (GLD) bouncing off support at 105 and surging to the 50-62% retracement zone. While the overall trend is up for GLD, this 50-62% retracement zone could mark resistance or even a reversal zone. GLD stalled over the last few days to confirm resistance around 112-113, but the gains of the last few weeks are largely holding. A move below 109 would show weakness that could signal a continuation of the December decline. The performance of gold has been closely tied to the Dollar and the Euro. Therefore, traders need to keep tabs on Dollar-Euro when it comes to gold. Gold rises when the Dollar falls and the Euro rises. Gold falls when the Dollar rises and the Euro falls.
Chart 11
