FALLING FLAGS REMAIN FOR DIA AND SPY -- STRENGTH IN THE DOLLAR WEIGHS ON OIL -- BOND ETFS HIT RETRACEMENTS -- GOLD MINERS ETF TESTS MAJOR SUPPORT LEVEL -- GOLD ETF FORMS TRIANGLE CONSOLIDATION
FALLING FLAGS REMAIN FOR DIA AND SPY... Link for todays video. Stocks got off to a weak start on Friday with the Dow Industrials SPDR (DIA) and S&P 500 ETF (SPY) moving lower in early trading. With these declines, lower highs are taking shape again this week to keep the falling flags in place. Chart 1 shows the Dow Industrials SPDR with lower peaks and troughs in May. A move above this weeks high is needed to break flag resistance.
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Chart 1
Chart 2 shows the S&P 500 ETF with a similar pattern at work. Also notice that RSI did not exceed 70 in late April. On a closing basis, SPY moved to a new 52-week high in late April, but RSI could not make it above its overbought level. Given the strength of the March-April rally, I would have expected RSI to exceed 70. This means a bearish failure swing and bearish divergence are taking shape in RSI. Wells Wilder notes that a bearish failure swing is confirmed with a move below RSI support. Judging from this chart, a move below the 40-50 support would turn RSI bearish.
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Chart 2
STRENGTH IN THE DOLLAR WEIGHS ON OIL... The Euro came under pressure today as the German Bundesbank said that the German economy was loosing strength, which would put downward pressure on European interest rates. This news sent the Euro sharply lower, the Dollar higher and oil lower. Chart 3 shows the Euro Currency Trust (FXE) bouncing the prior four days and the moving back below 142 today. This bounce looks like a small rising flag and the break signals a continuation of the prior decline. The next support zone resides around 137-138. Chart 4 shows the US Dollar Fund (UUP) with a falling flag just below resistance from the mid April high. A breakout here would be Dollar bullish. Chart 5 shows the 12-Month US Oil Fund (USL) giving back all of Wednesdays gain with a plunge below 44. A new short-term resistance level can now be based on this weeks high.
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Chart 3
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Chart 4
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Chart 5
BONDS ETFS HIT RETRACEMENTS ... Much to the surprise, and possible chagrin, of many, the rally in bonds continues unabated. A little over two months ago, March 9th to be precise, Bloomberg reported that Bill Gross had liquidated Treasuries from PIMCOs Total Return Bond Fund. The blue arrows mark this date on the charts below. Perhaps this selling pressure drove bonds down from September to early February. Selling pressure subsided once the holdings were all sold. Whatever the reason, chart 6 shows the 20+ year Bond ETF (TLT) bottoming in around 87.5 in mid February and reaching the mid 90s in May. TLT is up around 10% in this time, which is some serious strength for bonds. The overall trend here is up as the ETF broke the trendline extending down from the September high and cleared its March high.
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Chart 6
Despite a relatively strong uptrend, resistance could be nigh. Broken support and a Fibonacci cluster mark resistance in the 97 area. I am using two Fibonacci Retracements because there are two declines from October to February. There is a clear trough in early February, but two peaks in late August and early October. Instead of picking one move for the Fibonacci Retracements Tool, chartists can draw their retracements from both and look for clusters (overlap) to define a resistance area. These retracements are further reinforced with broken support, which turns into resistance. Before getting to excited about a top in bonds, note that we have yet to see a bearish reversal off this potential resistance zone. The thin green line marks the first support level to watch for a short-term breakdown. Chart 7 shows the 7-10 year Bond ETF (IEF) for reference.
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Chart 7
GOLD MINERS TESTS MAJOR SUPPORT LEVEL... After getting slammed with a 10+ percent decline in May, the Gold Miners ETF (GDX) hit support and bounced over the last few days. As chart 8 shows, this is no ordinary support level for GDX. Support in the 53 area stems from broken resistance and at least two reaction lows (October-January). There is also a reaction low around 55 in mid March. The ETF is finding some buying interest at support with a bounce the last few days. The black box highlights the last seven daily candlesticks. The first two are spinning tops, which affirm support. There was a mini-breakout with the move above the spinning top highs. Failure to hold last weeks low would be put the big support zone in jeopardy again. Chart 9 shows the Junior Gold Miners ETF (GDXJ) testing support from reaction lows extending back to mid November.
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Chart 8
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Chart 9
GOLD ETF FORMS TRIANGLE CONSOLIDATION ... Performance of the Gold Miners ETFs hinges on the performance of gold itself. Despite a sharp decline in early May, the Gold SPDR (GLD) remains in an uptrend overall. Chart 10 shows the ETF breaking resistance in early April and this resistance level turning into support. The ETF became way overbought with the late April surge and corrected sharply in early May. A triangle consolidation took place after this correction. A move below triangle support would argue for a continuation of the May decline and target broken resistance in the 137.5-140 area. An upside breakout would put the bulls back in the drivers seat and we could see a challenge to the prior highs.
