QQQ AND IWM BACK OFF RESISTANCE -- FINANCIALS CONTINUE TO WEIGH ON STOCKS -- HOMEBUILDERS SPDR FORMS HEAD-AND-SHOULDERS PATTERN -- SWISS FRANC AND YEN ARE STRONGEST CURRENCIES -- DOLLAR REMAINS STUCK IN CONSOLIDATION PATTERN
QQQ AND IWM BACK OFF RESISTANCE... Link for todays video. With a decline over the last seven days, the Russell 2000 ETF (IWM) and the Nasdaq 100 ETF (QQQ) backed off resistance from the 2011 highs. Taking a step back to look at the big picture, these ETF charts show strong advances followed by large consolidations. Chart 1 shows QQQ with a big advance from late August to mid February. Trading has since turned flat as the ETF bounced between 54 and 59 the last 6-7 months. Consolidations after big advances are quite normal. These provide the rest that potentially refreshes. Prices cannot go straight up forever. With the prior move up, the odds favor a bullish resolution and upside breakout. Also notice that QQQ has started to lead SPY again. The indicator window shows the Price Relative breaking the trendline extending down from late November.
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Chart 1
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Chart 2
Chart 2 shows the Russell 2000 ETF (IWM) hitting resistance in the 96 area over the last 3-4 months. IWM also sports a big advance from late August to April and a consolidation over the last several months. In fact, 2011 looks like one big consolidation. IWM tested support in the 76-77 area in January, March and June. These lows hold the key to long-term uptrend.
FINANCIALS CONTINUE TO WEIGH ON STOCKS... The Finance SPDR (XLF) led the market lower on Monday with an intraday low below its June low. Chart 3 shows XLF surging at the end of June and breaking short-term resistance. This breakout failed to hold as XLF met resistance near broken support in the 15.75 area and came right back down last week. With another lower high this month, we can now mark key resistance at this level. The indicator window shows XLF relative to the S&P 500 ETF (XLF:SPY ratio). This Price Relative peaked in January and move lower the last 6-7 months. Further weakness in July pushed this indicator to yet another new 52-week low. The finance sector has been and remains the Achilles heel of the stock market. Even though the broad indices have yet to break down, they continue to be hampered by weakness in financials.
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Chart 3
HOMEBUILDERS SPDR FORMS HEAD-AND-SHOULDERS PATTERN... With a lower high in early July, the Homebuilders SPDR (XHB) is tracing out a bearish Head-and-Shoulders Reversal pattern. As of April 2011, the ETF was in a clear uptrend and trading at its highest level since April 2010. The decline from this high extended all the way to the February-March lows. Such a deep decline reflects strong selling pressure. The subsequent bounce failed to reach the April high as the ETF reversed around 18.50. Overall, a clear Head-and-Shoulders pattern is forming with neckline support around 17. A break below the March-June lows would confirm this pattern and reverse the uptrend. At this point, the Head-and-Shoulders pattern has yet to be confirmed. XHB could still end up holding support. A bullish candlestick reversal pattern in the 17-17.50 area would increase the chances of a successful support test.
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Chart 4
SWISS FRANC AND YEN ARE STRONGEST CURRENCIES... The Swiss Franc Trust (FXF) and the Yen Trust (FXY) continue to attract money as currency safe-havens. Even though the country is situated in the middle of Europe, Switzerland is not part of the European Union and its currency continues to attract money as a Euro alternative. Swiss banks, and hence the Swiss economy, could also be benefitting from the rise in gold. Chart 5 shows the Swiss Franc Trust (FXF) moving from the mid 90s to the low 120s over the last 12 months. This is a massive move for a currency. The advance accelerated in February, which was right after gold bottomed. The indicator window shows the Spot Gold ($GOLD) bottoming in late January and surging above 1600 this month. Admittedly, both the Swissy and gold are getting overextended after big runs the last 5-6 months.
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Chart 5
The Yen has not been as strong as the Swiss Franc, but sports a recent breakout. Chart 6 shows the Yen ETF breaking above resistance from the highs extending back to October. Yes, I do see the March spike above 125, but this volatility spike can be attributed to the tsunami. I am inclined to ignore this spike because there is a clear resistance level around 123. Moreover, the ETF broke free with a move above 124 last week.
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Chart 6
DOLLAR REMAINS STUCK IN CONSOLIDATION PATTERN... Even though recent weakness in the Euro pushed the Dollar higher last week, it was not enough to trigger an upside breakout. First, lets look at the Euro, which accounts for around 57% of the US Dollar Fund (UUP). Chart 7 shows the Euro Currency Trust (FXE) peaking around 148 and declining to the 140 area this month. Despite the well-publicized debt problems in Europe, the Euro is still trading in the upper half of its 2011 range (128 to 148). The Euro seems to be holding up rather well considering the news. FXE appeared to be breaking down with last weeks plunge, but managed to bounce and hold support in the 140 area. Overall, the pattern looks like a surge from January to April and a falling wedge correction the last 2 1/2 months. The bears have the edge as long as this correction extends. At the very least, a surge above 142 is needed to signal a successful support test. A wedge breakout is needed for a full reversal.
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Chart 7
Chart 8 shows the US Dollar Fund hitting a new low in early May and then embarking on a consolidation. Despite the woes in Europe, the ETF remains below its May high and within the triangle. The blue lines mark support and resistance. Look for a move above last weeks highs to trigger a bullish breakout or a move below the early July low for a bearish break.
