FINANCE SECTOR CHALLENGES MID JUNE HIGHS -- US BANCORP AND HUNTINGTON BOUNCE OFF RETRACECMENT ZONES -- BASE METALS ETF BREAKS FLAG RESISTANCE -- SILVER BOUNCES OFF SUPPORT ZONE -- GOLD AND DOLLAR ETFS FORM TRIANGLE CONSOLIDATIONS -- TWO WEEK VACATION
FINANCE SECTOR CHALLENGES MID JUNE HIGHS... Finance was one of the leading sectors on Wednesday as the Finance SPDR (XLF) surged towards short-term resistance. Chart 1 shows XLF hitting support near broken resistance and the 61.8% retracement line throughout June. This support combination makes the area a good place to expect a reversal. However, support is one thing and buying pressure to start an uptrend is another. There were two failed surges in June to establish short-term resistance. With another surge today, XLF is again challenging this resistance level. The first two failed so it would be prudent to wait for a clear breakout before taking this one seriously. Short-term, there is a gap today and this marks the first level to watch for signs of a failure. A move below todays gap zone would make this another failed breakout.
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Chart 1
US BANCORP AND HUNTINGTON BOUNCE OFF RETRACECMENT ZONES... Citigroup (C) and Bank of America (BAC) are garnering most of the attention, and volume, today. However, these stocks are bouncing from severe oversold conditions. C is bouncing off its August lows while BAC is bouncing from a 52-week low. Bank stocks in general are still a risky proposition, but perhaps bank stocks that held above last summers lows would be more interesting. At least they held up better and showed relative strength. Chart 2 shows Huntington Bancshares (HBAN) retracing a 61.80% of the August-February advance with a falling wedge. Both the retracement and the pattern are typical for corrections within bigger uptrend. With a surge over the last three days, the stock is making a bid to break its first resistance level. Chart 3 shows US Bancorp (USB) with a similar pattern at work. USB broke resistance with a surge above 25 today.
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Chart 2
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Chart 3
BASE METALS ETF BREAKS FLAG RESISTANCE... The commodity bounce continued on Wednesday with the Base Metals ETF (DBB) breaking above flag resistance. John Murphy showed the Commodity Index Fund ($DBC) bouncing off its 200-day line on Tuesday. Further to this bounce, chart 4 shows the Base Metals ETF holding above its May low to form a higher low in June. In addition, the ETF surged above 23.50 to break flag resistance. This 1-2 punch is positive for base metals. There was a pullback from the days high so chartists should watch this breakout closely for signs of a failure. A move below the green trendline extending up from the late May low would be a bearish development.
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Chart 4
In the indicator window, we can see DBB (black) peaking ahead of the Basic Materials SPDR (XLB) in April and bottoming ahead of XLB here in June (blue arrows). XLB is clearly influenced by the price of base metals.
SILVER BOUNCES OFF SUPPORT ZONE... Chart 5 shows the Silver Trust (SLV) surging from July 2010 to April 2011. The ETF advanced over 150% with two moves in this timeframe. The second move was almost straight up. As a semi-precious and semi-industrial metal, silver benefitted from rising precious metals and rising base metals. What goes up, must come down. And it did. After a sharp decline in early May, the ETF found support near the March low and the 50% retracement line. There was a small bounce in May and then another test of this support zone this week. This is a make-or-break moment for silver. A successful test and channel breakout would be quite positive. Conversely, a break below support would signal a continuation of the May plunge and target a move to the next support area around 26-28.
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Chart 5
The indicator window shows RSI with a resistance area of its own. This key momentum indicator broke down in early May with a plunge below 40. RSI has since been unable to hold above 50 in late May and June. A resistance zone has been established just above 50. RSI needs to clear the May-June highs to turn momentum in favor of the bulls again.
GOLD AND DOLLAR ETFS FORM TRIANGLE CONSOLIDATIONS... The inverse relationship between gold and the Dollar is an open secret. Gold tends to move lower when the Dollar moves higher and visa versa. This has certainly been the case in 2011. John Murphy featured the Dollar on Tuesday with what appears to be a bearish consolidation pattern. Chart 6 shows the US Dollar Fund (UUP) with a decline from January to April and then a triangle consolidation the last two months. This amounts to a rest within the downtrend. A break below triangle support would signal a continuation of the ongoing downtrend. Should UUP hold support, a break above the June highs would argue for a reassessment of the current downtrend. The indicator window shows RSI hitting resistance in the 50-60 zone this month. RSI broke above 60 twice in May, but failed to extend on these breakouts. Renewed resistance at 60 this month indicates that upside momentum is weak.
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Chart 6
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Chart 7
While UUP has a triangle within a downtrend forming, chart 7 shows the Gold SPDR (GLD) with a triangle forming after an advance. The ETF surged from late January (128) to late April (152) and then began to trade sideways. With a lower high in June, chartists can draw the upper trendline of a triangle. The lower trendline is still tentative because the bounce over the last two days looks hesitant with small candlesticks.
TAKING A TWO WEEK VACATION... My family and I will be taking a two week vacation the first two weeks of July. I will return to the Market Message on Monday, July 18th. Happy 4th!
