SPY FORMS BEARISH HARAMI AT RESISTANCE -- RUSSELL 2000 ETF TESTS GAP AND BREAKOUT -- GOLD AND COMMODITIES DECLINE SHARPLY AFTER EXTENDED RUNS -- DOLLAR BULLISH ETF CHALLENGES RESISTANCE -- DOLLAR AND EURO ARE CAPABLE OF BIG SWINGS
SPY FORMS BEARISH HARAMI AT RESISTANCE... Link for todays video. With a weak open on Monday and decline throughout the week, the S&P 500 ETF (SPY) and the Dow Industrials SPDR (DIA) formed bearish harami patterns. These candlestick reversals form when the current candlestick body is inside the prior candlestick body. The open and close form the candlestick body. These patterns basically reflect an inside week, which shows indecision that can foreshadow a reversal. Further downside would confirm these patterns and argue for a correction to unfold. Chart 1 shows SPY forming a harami at resistance from the April high. Also notice that a bearish engulfing marked the April high.
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Chart 1
Chart 2 shows the Dow Industrials SPDR with its fourth bearish candlestick reversal this year. A dark cloud marked the April high, bearish engulfing patterns marked the June and August pullbacks, and a harami formed over the last two weeks. Despite this harami, momentum remains in bull mode as StockRSI holds above .50, its middle line. The green dotted lines show when StochRSI moved back above .50 to turn momentum bullish again. Momentum favors the bulls when StochRSI is above its middle line. It is like the cup is half full. A break below .50 would signal a shift in momentum that could be used to confirm the harami pattern.
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Chart 2
RUSSELL 2000 ETF TESTS GAP AND BREAKOUT... The Russell 2000 ETF (IWM) broke above consolidation resistance with a surge above 73 on 4-Nov. This breakout signaled a continuation of the uptrend. Chart 3 shows the ETF stalling above 72 the last seven days. Technically, the gap and breakout are holding. This should be considered bullish until proven otherwise. The trendline extending up from the late August low confirms support in this area as well. It is a steep trendline though. A move below the gap zone and trendline would provide the first sign of weakness. I would not view this as a major sign of weakness. Also note that the consolidation lows mark support around 69. The indicator window shows the Commodity Channel Index (CCI) holding in positive territory to keep momentum bullish. CCI has been positive since early September. This is a long time without a dip in negative territory. Momentum would turn bearish with a break into negative territory.
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Chart 3
GOLD AND COMMODITIES DECLINE SHARPLY AFTER EXTENDED RUNS... Fears of a credit tightening in China triggered strong selling pressure in commodities and commodity related ETFs. In reality, many commodity related ETFs were up sharply over the last few months and ripe for a pullback or consolidation. With these sharp declines, some commodity ETFs are closing in on short-term support levels. Chart 4 shows the Agriculture ETF (DBA) declining sharply after a 34% advance from June to early November. Broken resistance and the June trendline combine to mark support around 28. Chart 5 shows the Base Metals ETF (DBB) pulling back sharply after a 41% advance from June to November. Support for DBB is close at hand with the mid October low and the June trendline. Chart 6 shows the Gold SPDR (GLD) breaking back below 135 after a 20+ percent advance from late July to early November. First support for GLD is set with the October lows around 127.7-128.
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Chart 4
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Chart 5
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Chart 6
DOLLAR BULLISH ETF CHALLENGES RESISTANCE... With a surge over the last six days, the US Dollar Fund (UUP) is challenging resistance in the 22.75 area. Dollar strength started with a failed support break. Chart 7 shows the ETF plunging below the October low last week and then recovering with a sharp move higher. A failed support break is positive. Follow through above the mid-late October highs would break resistance to trigger a bullish signal. The June trendline confirms resistance in this area as well. Momentum-wise, RSI is challenging its resistance zone (50-60). Notice how RSI broke below 40 in early July to put momentum into bear mode. The 50-60 zone held as the ETF bounced in August and early September. A break above 60 can be used to confirm a resistance breakout on the price chart.
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Chart 7
DOLLAR AND EURO ARE CAPABLE OF BIG SWINGS... Swings can be quite swift and deep in the currency markets, especially with the Dollar and the Euro. The Euro makes up some 57% of the US Dollar Fund and the US Dollar Index ($USD). Most recently, the Dollar performed well when the market was concerned with European debt issues. Conversely, the Euro performed well when market focus turned to QE2. Chart 8 shows the US Dollar Fund over the last two years. There have been three big swings since March 2009. The ETF fell 18% in 7-8 months, advanced 16.8% in 6 months and then declined 14.4% in 5 months. These are pretty big swings for a currency ETF. The current swing is down, but focus shifted from QE2 to European debt this week and the Dollar surged. A breakout could lead to another swing of at least 10%. The MACD-Histogram (5,35,5) is shown below as a momentum indicator with red and green arrows marking negative and positive turns. Note that this indicator is on the verge of turning positive again.
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Chart 8
Chart 9 shows weekly candlesticks for the Euro Currency Trust (FXE) over the last two years. Notice how the ETF hit resistance near the 62% retracement mark and declined below its October lows this week. Also notice how the ETF formed a candlestick with a long upper shadow last week. This reflects a failed rally. Combined with this weeks sharp decline from retracement resistance, it looks like the Euro is vulnerable to further weakness towards broken resistance around 132.5.
