SEMICONDUCTOR HOLDRS RECORD 52-WEEK HIGH -- SEMI EQUIPMENT STOCKS LEAD AS INTEL LAGS --- EURO CHALLENGES KEY RESISTANCE LEVEL -- GOLD ETF STILL TESTING DECEMBER LOW -- GOLD MINERS ETF NEARS SUPPORT ZONE
SEMICONDUCTOR HOLDRS RECORD 52-WEEK HIGH... Link for todays video. The Semiconductor HOLDRS (SMH) remains one of the strongest industry group ETFs since September. Chart 1 shows SMH forming a pennant consolidation in late December and breaking resistance this week. Todays move forges a 52-week high for this key tech bell weather. Todays move also reinforces support from the late December low. Even though the ETF is overbought, the bulls are clearly in control as long as this support level holds. The indicator window shows the Price Relative turning up this week as well and reversing the December slide.
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Chart 1
SEMI EQUIPMENT STOCKS LEAD AS INTEL LAGS... SMH recorded todays 52-week high without the help of Intel, which reported earnings on Thursday. After underperforming the market from mid December to early January, chart 2 shows Intel getting a pre-earnings pop above 21.25 this week. This pop was enough to break the wedge/channel trendline and reverse the four week slide. The breakout is still holding, but it is under threat with todays post-open decline. So why is SMH up today? Look no further than the semiconductor equipment stocks. Chart 3 shows Applied Materials (AMAT) gapping up and surging over 4%. Todays move pushes AMAT above its 2010 highs for a fresh 52-week high. Chart 4 shows Novellus (NVLS) gapping up and surging over 5% to record a 52-week high. Chart 5 shows KLA-Tencor (KLAC) following suit.
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Chart 2
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Chart 3
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Chart 4
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Chart 5
EURO CHALLENGES KEY RESISTANCE LEVEL... Successful bond auctions for Portugal, Spain and Italy powered the Euro higher this week. In addition, Germany continued jawboning the Euro higher by saying it would do whatever is needed to support the Euro. The combination sent the Euro sharply higher the last two days and gold sharply lower. Despite these big moves, the bigger trends remain in force: Euro-down and gold-up. Now that the dust has settled, the Euro Currency Trust (FXE) is at its moment-of-truth. Chart 6 shows the Euro Trust surging over 3% the last three days. The ETF reneged on last weeks support break and is poised to challenge resistance at 134. While I am not ready to turn bullish on the Euro just yet, this weeks surge calls for a reassessment on the chart. The ETF retraced 50-62% of the June-November advance with the decline back to around 128. A falling wedge formed and the ETF broke the wedge trendline this week. Some positives are starting to emerge, but resistance at 134 looks formidable. Also notice that RSI is trading in its resistance zone (50-60). Follow through above 134 in the Euro and 60 in RSI would be bullish. Chart 7 shows the US Dollar Fund (UUP) testing an important support level as the ETF failed to hold its flag breakout.
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Chart 6
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Chart 7
GOLD ETF STILL TESTING DECEMBER LOW... Normally, a sharp decline in the Dollar would put a bid in gold shares. After all, last weeks sharp rise in the Dollar (+2.8%) weighed on gold, which was down over 3.5% the first week of the year. So far, this week has been just the opposite. The Dollar is down around 2% this week and gold is down around 1%. Analysts indicate that gold lost its safe-haven appeal after this weeks successful bond auctions in Europe. Gold could also be under pressure from another move to tighten reserve requirements in China. Despite a break below the December low, the long-term trend for gold remains up. Chart 8 shows the Gold SPDR (GLD) with a rising price channel over the last two years. The January 2009 trendline marks support in the 128-130 area. Chart 9 shows daily prices to confirm support in this area from the October-November lows. After an advance from 113 to 138 (+22%) in 4-5 months, the ETF is entitled to some sort of correction or pullback.
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Chart 8
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Chart 9
The indicator window on chart 9 shows naked MACD, which is just MACD without its signal line or histogram. I removed these to simply focus on the trend for the indicator. Enter 12,26 in the MACD parameters box to remove these. Chartists can draw trendlines based on the reaction lows and reaction highs to define momentum swings. There was an upswing from February to May, a downswing from May to July, an upswing from August to October and a downswing since October. The September reaction low was too small to justify a trendline so I did not draw one here. Momentum (MACD) has been weakening since mid October. A break above this MACD trendline would provide the first sign that this correction has ended.
GOLD MINERS ETF NEARS SUPPORT ZONE... The Gold Miners ETF (GDX) has been underperforming bullion as it nears an important support zone around 54. Chart10 shows GDX breaking resistance around 54 in September and this level turning into support in October. Support here is reinforced by the 50-62% retracement zone. The indicator window shows the Price Relative comparing the performance of GDX to gold. Despite a rather choppy rise, GDX outperformed gold as the Price Relative rose from February to early December. GDX started underperforming gold in early December and the Price Relative broke the February trendline. It is usually negative for gold when GDX underperforms.
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Chart 10
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Chart 11
Chart 11 shows the Junior Gold Miners ETF (GDXJ), which consists of the second tier gold stocks. GDXJ has held up better than its senior cousin, but suffered nonetheless. Broken resistance around 34 turns into the first support level to watch. This ETF has consistently outperformed the Senior Gold Miners ETF since July. However, should the decline in gold extend, this ETF is likely to take a harder hit and start underperforming (leading lower).
