S&P 500 FIRMS AFTER BREAKING 200-DAY MOVING AVERAGE -- QQQ FIRMS IN FIBONACCI RETRACEMENT ZONE -- REAL ESTATE ISHARES TESTS SUPPORT ZONE -- GLD SURGES OFF SUPPORT AS STOCHASTIC OSCILLATOR TURNS UP -- SILVER ETF REMAINS IN CONSOLIDATION AND LAGS GOLD
S&P 500 FIRMS AFTER BREAKING 200-DAY MOVING AVERAGE... Link for todays video. Stocks got slammed last Friday after yet another economic report came in below expectations. Actually, a few economic reports came in below expectations last week (Chicago PMI, jobless claims, non-farm payrolls, ISM Manufacturing). This trend continued on Monday as factory orders fell in April. Economists were expecting a rise. Economic reports have been largely below expectations the last two months and the stock market is pricing in this information. The S&P 500 was trading above 1400 and near a 52-week high in early April and even in early May. One could say that stocks were priced for perfection. With a decline below 1270, the index is down just over 10% from its spring highs.
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Chart 1
Chart 1 shows the S&P 500 over the past year. Notice that this benchmark index broke the widely followed 200-day simple moving average. The prior downside break occurred in early August 2011 and foreshadowed further weakness. Even so, I am estimating support in the 1250 area, which marks a 50% retracement of the October-May advance. We could even see an overshoot because some sort of selling climax is possible before all selling is exhausted. This could push the index to 1200, which marks a 61.80% retracement. The indicator window shows the 250-day Rate-of-Change (about one year). This one year rolling return edged into negative territory in late May and on Friday. The one year Rate-of-Change hit -5% at the October low.
QQQ FIRMS IN FIBONACCI RETRACEMENT ZONE... Stocks managed to firm somewhat on Monday with the Nasdaq 100 ETF (QQQ) forming a harami. Todays smaller white body is within Fridays black candlestick body and this shows indecision, which can foreshadow a short-term reversal. Chart 2 shows this potentially bullish candlestick reversal pattern forming within a Fibonacci zone. The current decline has retraced 50-61.80% of the January-May advance. We can also assume that the ETF is oversold after a 10+ percent decline since late March. Harami are bullish candlestick reversal patterns that require confirmation. A move above 61.50 would fill Fridays gap and confirm this short-term bullish reversal pattern. The indicator window shows CCI bouncing above/below the -100 line. A CCI break above its late May high would provide the early bullish signal for momentum. Even if a short-term bounce take hold, I would still view it has an oversold bounce within a bigger downtrend. The late May high marks the first important resistance level to watch.
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Chart 2
REAL ESTATE ISHARES TESTS SUPPORT ZONE... After leading the market higher in late April, the Real Estate iShares (IYR) was hit hard in May and is now testing support from the lows extending back to February. Chart 3 shows IYR falling below 60 and even moving below the lows of the last four months. Volume surged during the May decline and reached levels that could indicate a selling climax. Also notice that the ETF became quite oversold in May as the Commodity Channel Index (CCI) dipped below -200 for the second time in as many months. Right now, CCI is both oversold and bearish. A CCI surge into positive territory would signal that IYR was turning up near the support zone.
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Chart 3
GLD SURGES OFF SUPPORT AS STOCHASTIC OSCILLATOR TURNS UP... The Gold SPDR (GLD) was not part of the flight-to-safety trade the last few months, but the ETF caught a big bid on Friday and surged above 155. Chart 4 shows weekly prices over the last three years. Support in the 150 area stems from the December and May lows as well as a 61.80% retracement of the 2011 advance. After stalling near support the prior two weeks, GLD dipped below 150 mid week and then closed above 155 on Friday. Even though the trend is still down since August 2011, this surge off support is the first sign of strength since January. The indicator window shows the Stochastic Oscillator moving below 20 and then surging back above 20 last week. This move confirms the bounce off support and momentum remains bullish as long as the oscillator holds above its signal line.
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Chart 4
Chart 5 shows daily candlesticks with the Gold SPDR gapping through resistance. The gap and resistance break better holds. A move back below 153 would suggest a failed breakout and call for a reassessment. Basically, strong breakouts hold and weak breakouts fail. A strong breakout should hold and GLD should continue higher with little backing and filling. Failure to follow through would suggest underlying weakness.
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Chart 5
SILVER ETF REMAINS IN CONSOLIDATION AND LAGS GOLD... The difference between gold and silver became apparent on Friday. Gold is a precious metal that is viewed as a currency alternative and, sometimes, as a safe haven. Even though it is a semi-precious metal, silver is viewed more as an industrial metal and is closely tied to economic performance (demand). Chart 6 shows the Silver Trust (SLV) firming near the December low, but failing to bounce and break out. SLV formed a small triangle or pennant the last few weeks. These are typically continuation patterns and a break below 26.50 would signal a continuation of the current decline. Even though a bearish continuation pattern is taking shape, traders need to also be prepared for the unexpected, such a resistance break that would target an oversold bounce back towards broken support at 30.
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Chart 6
Chart 7 shows weekly bars over the last four years. Notice that SLV broke a long trendline at the end of 2011 and formed lower highs the last 15 months. Broken resistance turns next support just below 20.
