GOLD ETF SURGES TO RESISTANCE -- GOLD MINERS PLAY CATCH-UP -- HOMEBUILDERS ADVANCE IN THE FACE OF BAD NEWS -- S&P 500 HITS RESISTANCE AT BROKEN SUPPORT -- COMPARING SPX AND SPY CANDLESTICKS

GOLD ETF SURGES TO RESISTANCE... Link for todays video. With a surge above 140, the Gold SPDR (GLD) is challenging resistance from its March highs and the ETF is poised to hit a new all time high. Chart 1 shows the Gold SPDR advancing 3% the last six days. The short-sharp pullback in early March forged a reaction low around 135 that becomes the first support level to watch. Overall, an inverse head-and-shoulders pattern is taking shape. The December low marks the left shoulder, the January low marks the head and the March low marks the right shoulder. This is a bullish continuation pattern and a break above the March highs opens the door to further strength. Chartists can also interpret the pattern since early January as a cup-with-handle, which is also a bullish continuation pattern.

(click to view a live version of this chart)
Chart 1

GOLD MINERS PLAY CATCH-UP... The Gold Miners ETF (GDX) has been lagging gold over the last four months. Chart 2 shows GDX hitting a 52-week high in early December and then breaking below its October low in late January. With a couple more swings, a large consolidation pattern has evolved that looks like a triangle. After lower highs and relative weakness the last few months, a higher low formed in March as the ETF surged above 60 the last four days. Looks like the gold miners are playing a little catch up to gold. The Price Relative shows the GDX:GLD ratio, which reflects the performance of GDX relative to the Gold SPDR. GDX has been underperforming since mid December. The Price Relative surged over the last few days and a breakout would signal relative strength in the gold miners.

(click to view a live version of this chart)
Chart 2

HOMEBUILDER ETFS ADVANCE IN THE FACE OF BAD NEWS... The Commerce Department reported that new home sales declined 16.9% in February. New homes sales hit a seasonally adjusted rate of 250,000, which is a record low. One would expect the homebuilding ETFs to be down sharply after such news. But they werent. Chart 3 shows the Homebuilders SPDR (XHB) opening weak and then moving higher to close near 18. A falling wedge formed since late February and the ETF broke above the wedge trendline with Mondays gap. The indicator window shows the Price Relative moving higher the last three weeks as XHB shows relative strength in March. Chart 4 shows the Home Construction iShares (ITB) breaking above the wedge trendline and battling to stay above this trendline. A little follow through above the March high would be bullish. The indicator window shows the Price Relative turning up in early March.

(click to view a live version of this chart)
Chart 3

(click to view a live version of this chart)
Chart 4

S&P 500 HITS RESISTANCE AT BROKEN SUPPORT ... With a sharp bounce the last few days, the S&P 500 is back near its 50-day SMA and challenging its first resistance level. Chart 5 shows the S&P 500 with the 50-day SMA and Fibonacci Retracements Tool. The index broke wedge support with a sharp decline that retraced 50-62% of the November-February advance. Even though the decline was rather sharp, the retracement amount is normal for a correction within a bigger uptrend. With a sharp rebound the last few days, the index is back near broken support levels, which now act as first resistance around 1300. Also notice that the index broke the 50-day SMA around 1300 and this moving average is returning to mark resistance. The first challenge is upon us. Follow through back above the 50-day moving average would be a positive development for the S&P 500.

(click to view a live version of this chart)
Chart 5

(click to view a live version of this chart)
Chart 6

Chart 6 shows the S&P 500 ETF (SPY) with similar characteristics. I am showing this chart to note the similarities when looking at the bigger picture. Both broke their 50-day SMAs on the same day and both are currently meeting resistance from this moving average. Both formed consolidation patterns and broke consolidation support with sharp declines in early March. The S&P 500 formed a small rising wedge, while SPY formed a triangle because of a slightly lower high the second week of March. Broken supports around 1300 for the S&P 500 and 130 for SPY are turning into the first resistance zone to watch. And finally, both bottomed in the middle of their 50-62% retracement zone.

SPY CANDLESTICKS VERSUS SPX CANDLESTICKS ... Even though the S&P 500 and the S&P 500 ETF (SPY) track quite well over the medium-term and long-term, daily candlestick action can be quite different. The S&P 500 is an index that prints a price seconds after the market open. More often than not, the S&P 500 prints a price before all of its components have opened for trading. This first price does not always reflect market realities, especially when a big gap is expected. Candlesticks on Friday and Monday are quite different for SPY and $SPX. The S&P 500 formed a small white candlestick with a long upper shadow on Friday and a long white candlestick on Monday. Judging from these candlesticks, the S&P 500 showed a weak buying pressure on Friday and strong buying pressure on Monday. SPY candlesticks paint a completely different story. SPY formed a long black candlestick on Friday and a small white candlestick on Monday. SPY price action reflects strong selling pressure on Friday and weak buying pressure on Monday. Which one are we to believe?

(click to view a live version of this chart)
Chart 7

(click to view a live version of this chart)
Chart 8

In contrast to the S&P 500, the S&P 500 ETF open is based on an actual trade. Shares exchanged hands at the opening prices. The S&P 500 open is not based on an actual trade, but rather the index value at the time. Notice how the S&P 500 produced a small gap and surged higher the first five minutes on Friday and Monday. In contrast, SPY produced a big gap on both days. SPY simply opened where the S&P 500 ended after the first five minutes of trading. A true open makes all the difference with candlesticks. SPY moved down after its open on Friday and traded slightly higher after its open on Monday. As far as I am concerned, SPY produces more robust candlesticks than the S&P 500.