SPY STALLS AT CHANNEL TRENDLINE - EURO GETS OVERSOLD BOUNCE - STRENGTH IN CHINA LIFTS CRUDE - ENERGY SECTOR RECOVERS AFTER SUPPORT BREAK - GOLD STALLS AFTER BIG SURGE
SPY STALLS AT CHANNEL TRENDLINE ... Link for todays video. The S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQQ) are trading near the upper trendline of a rising price channel that extends back to August. I drew the lower trendline first, created a second parallel trendline and then moved it up to match the reaction highs. After a sharp advance the last 6-7 weeks, both SPY and QQQQ became overbought and hit channel resistance. Chart 1 shows SPY stalling near the upper trendline the last two weeks. Chart 2 shows QQQQ hitting the upper trendline last week. The odds of a pullback or consolidation seem high with these key ETFs overbought and channel resistance hand.
Chart 1
Chart 2
The current overbought period compares to July-August, when RSI was above 70 for over two weeks. Prior to Jan-Feb, the last correction was in June-July. This correction ended with a surge that created extended overbought conditions. The July-August overbought condition did not foreshadow a correction, but it did foreshadow a period of choppy trading (yellow areas), and subsequent advance to new highs. Pullbacks pushed RSI just below 50 and ended when RSI crossed back above 50 (green arrows). These RSI dips provided a means to participate in the ongoing uptrend. Going forward, this strategy is certainly not fool proof, but it is something to consider as RSI trades near 70.
EURO GETS OVERSOLD BOUNCE ... The Euro got an oversold bounce with some positive news coming out of Greece on Monday. After holding out for lower rates, the Greek government announced that it is moving ahead with plans to sell some bonds. This comes on the heels of last weeks European agreement to help Greece. At this point, the two day bounce looks like an oversold bounce within a larger downtrend. Chart 3 shows the Euro ETF (FXE) bouncing back above 134 on Monday. Despite this bounce, the overall trend is clearly down as FXE remains below the December trendline. The ETF forged yet another lower low last week and broken support around 134.5 turns into the first resistance level. It would take a break above 138 to actually reverse the medium-term downtrend. Chart 4 shows the DB Dollar Bullish ETF (UUP) doing just the opposite of the Euro. UUP became overbought after a five day surge above 24. The ETF pulled back over the last two days. Broken resistance around 23.8 turns into the first support zone.
Chart 3
Chart 4
STRENGTH IN CHINA LIFTS CRUDE... With the Dollar moving lower and the Shanghai Composite breaking 3100, oil futures surged above $82 per barrel. Chart 5 shows the US Oil Fund ETF (USO) over the last 18 months. USO surged to 40 in early June and then embarked on a long trading range. USO met resistance around 40 numerous times from October until March. With todays bounce, the ETF is once again making a breakout bid. A weekly chart break above the January high would be most bullish. The indicator window shows USO with the Dollar ETF (UUP), which bottomed in late November. Even though the Dollar is up substantially since late November, USO is still trading near its November highs. Oil held up pretty well during the Dollar advance. It seems that stock market performance is more important to oil performance.
Chart 5
Chart 6 shows USO and the S&P 500 in the indicator window. These two have been tracking quite closely in 2010. On the price chart, USO is currently consolidating between 38.5 and 40.5 almost the whole month. A breakout at 40.5 would be the first bullish signal on the daily chart. A support break would argue for a downswing. Chart 7 shows the Shanghai Composite ($SSEC) surging above 3100 for the first time since January.
Chart 6
Chart 7
ENERGY SECTOR RECOVERS AFTER SUPPORT BREAK... Chart 8 shows the Energy SPDR (XLE) breaking support with a sharp decline last week, but rebounding back above this support break on Monday. XLE broke the rising wedge trendline and mid March low with a move below 57. Even with todays big bounce, this support break remains in play. XLE established resistance at 57.60 last week and follow through above this level would call for a reassessment. The indicator window shows XLE tracking USO quite closely the last six months. I would also look for an upside breakout in USO to support any breakout in XLE.
Chart 8
Chart 9 shows the Oil Service HOLDRs (OIH) with an even bigger support break seven days ago. Like XLE, the ETF peaked below the January high and formed a rising wedge in Feb-Mar. The wedge support break is bearish until proven otherwise. A surge back above 125 and an upside breakout in crude would call for a reassessment.
Chart 9
GOLD STALLS AFTER BIG SURGE... Chart 10 shows the Gold ETF (GLD) surging on Friday and then stalling on Monday. The rebound after last weeks decline from 110 keeps the falling wedge breakout alive. To review: GLD formed a falling wedge in December-January and broke wedge resistance with a surge in February. Broken resistance and the late February low turned into support that has now held throughout March. GLD actually broke support last week, but the quick rebound kept the breakout alive. It is now possible that a falling flag formed in March. Falling flags are bullish consolidation patterns. Fridays surge is a start and follow through above flag resistance would be bullish for bullion. A lot may depend on the Dollar. Last weeks sharp decline in gold coincided with a sharp advance in the greenback. Buyers returned to gold as the Dollar weakened the last two days.
Chart 10
Chart 11 shows weekly candlesticks with a possible channel developing over the last few months. Barring an upside breakout, this channel projects further weakness towards the 1000 area. Notice that support around 1000 stems from broken resistance and the 50-62% retracements. Weekly MACD continues to fall and it would take a move above the signal line to turn momentum bullish again.
Chart 11
