LARGE-CAP TECHS LEAD AS STOCKS GET OVEREXTENDED -- GOLD SPDR BREAKS WEDGE TRENDLINE AFTER FED STATEMENT -- GOLD MINERS FOLLOW GOLD HIGHER -- JUNIOR GOLD MINERS OUTPERFORM THE SENIORS -- BARRICK AND GOLDCORP LEAD THE GOLD MINER SURGE
LARGE-CAP TECHS LEAD AS STOCKS GET OVEREXTENDED... Link for todays video. All of the major index ETFs were up on Wednesday with gains ranging from .65% for the Dow Industrials SPDR (DIA) to 1.26% for the Nasdaq 100 ETF (QQQ). Admittedly, these are relatively modest gains for such a big news day. In addition to blow out earnings from Apple, the Fed noted that it would keep the Fed funds rate near zero until late 2014, which is over a year longer than previously indicated. Even though stocks rallied on dovish comments from the Fed, todays gains may have been muted because stocks are up significantly since December 19th. In fact, chart 1 shows that the Nasdaq 100 ETF and the Russell 2000 ETF (IWM) are up over 10% the last 5-6 weeks. The major index ETFs are up even more when measured from their late November lows or early October lows. While there are no signs of significant selling pressure, the current rally is getting overextended and stocks are ripe for a correction or consolidation.
(click to view a live version of this chart)
Chart 1
Chart 2 shows QQQ breaking above its 2011 highs last week and recording another 52-week high with the move above 60 today. Broken resistance in the 59-59.5 area turns into the first support zone. A lower broken resistance level and the October trendline mark the second support zone in the 57.50 area. Chart 3 shows the Dow Industrials SPDR breaking its 2011 highs with a move above 126. Broken resistance and the October trendline combine to mark first support in the 122-123 area.
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
GOLD SPDR BREAKS WEDGE TRENDLINE AFTER FED STATEMENT... The Gold SPDR (GLD) continued its 2012 run with a surge above 164 on Wednesday. I showed Spot Gold ($GOLD) on Friday and will show the ETF today. Overall, the price patterns and resistance levels are the same. Chart 4 shows the Gold SPDR surging above the trendline extending down from the early September high and exceeding the 61.80% retracement mark. As noted on Friday, the trendline and retracement marked a make-or-break area for gold. Looks like the bullion bulls are making a break for it. The pattern since late September looks like a large falling wedge, which retraced 61.80% of the 2011 advance. Both the pattern and the retracement are typical for corrections within bigger uptrends. This wedge signals a continuation of the bigger uptrend and targets a move above the 2011 highs. Before leaving this chart, notice that the Correlation Coefficient (GLD,$SPX) is at .96, which is just a hair below perfect positive correlation (+1). Gold continues to move step-for-step with the stock market in 2012.
(click to view a live version of this chart)
Chart 4
GOLD MINERS FOLLOW GOLD HIGHER... Even though gold rallied the entire month, the Gold Miners ETF (GDX) stuttered in the middle of January and fell back below 52. This weakness can be blamed on some of the ETF heavy weights, which account for almost 40% (Newmont (10.03%), Goldcorp (12.76%) and Barrick (16.03%)). More on these three in the next section. Chart 5 shows GDX surging above 54 and then pulling back with a small falling wedge. Notice that this wedge retraced 61.80% of the prior advance. With todays big move, the ETF formed a higher low and broke wedge resistance to signal a continuation higher. While the trend since September remains down, this breakout shows some strength that could extend to September trendline, which marks the next resistance level.
(click to view a live version of this chart)
Chart 5
JUNIOR GOLD MINERS OUTPERFORM THE SENIORS... It is interesting to note that the Junior Gold Miners ETF (GDXJ) held up much better than the senior gold miners. Chart 6 shows GDXJ surging at the end of December and continuing higher throughout January. This ETF did not dip like the Gold Miners ETF and the juniors are showing relative strength a
(click to view a live version of this chart)
Chart 6
BARRICK AND GOLDCORP LEAD THE GOLD MINER SURGE... PerfChart 7 shows year-to-date performance for the top ten holdings of the Gold Miners ETF. The biggest holding (Barrick) is on the far left, while the smallest holding (Kinross) is on the far right. With big moves today, Barrick and Goldcorp are starting to show some leadership. Newmont, however, remains a laggard and is up less than 1% year-to-date.
(click to view a live version of this chart)
Chart 7
Chart 8 shows Barrick (ABX) finding support in the 43-45 area several times in the last six months. The decline from mid January formed a sharp falling flag and the ETF broke flag resistance with a surge above 47 today. Chart 9 shows Goldcorp (GG) finding support in the 42-43 area in October and December. GG surged at the end of December and then consolidated the last few weeks. Todays surge broke consolidation resistance with good volume. Chart 10 shows Newmont (NEM) forming a bullish engulfing on high volume today. Despite todays good showing, this stock is clearly one of the weakest of the group. A falling price channel formed from early November to late January. It would take a move above 65 to break resistance from the mid January high.
(click to view a live version of this chart)
Chart 8
(click to view a live version of this chart)
Chart 9
(click to view a live version of this chart)
Chart 10
BASE METALS ETF BREAKS OCTOBER HIGH... The Base Metals ETF (DBB) has also been on a tear with a 10+ percent surge in 2012. This ETF consists of three metals: Copper (33.8%), Zinc (33.28%) and Aluminum (32.92%). Chart 11 shows DBB hitting support in the 18-18.50 area from early October until late December. The ETF took off at the beginning of January and broke above its October-November highs this week. Overall, the pattern looks like a double bottom of sorts and this breakout should be considered bullish until proven otherwise. A move back below 20 would call for a reassessment. As long as the breakout holds, the next target is resistance in the 23 area. Strength in base metals is important because DBB is positively correlated with the stock market. Notice that the Correlation Coefficient (DBB, $SPX) has been largely positive the last 12 months. Chart 12 shows the Copper ETN (JCC) holding above its October lows then breaking falling wedge resistance two weeks ago.
(click to view a live version of this chart)
Chart 11
(click to view a live version of this chart)
Chart 12
EARLY REGISTRATION FOR CHARTCON 2012 ENDS SOON... This year's Seattle conference is filling up quickly. Register before Jan. 31st and save $100! You'll hear how Chip Anderson, John Murphy, Arthur Hill, Richard Rhodes, Carl Swenlin and Tom Bowley analyze and profit from the stock market using StockCharts.com. CLICK HERE for more information.
