A BIG SUPPORT TEST AT HAND FOR QQQ AND DIA -- MAKE-OR-BREAK TIME FOR THE CONSUMER DISCRETIONARY SPDR -- USO BREAKS PENNANT RESISTANCE -- XLE AND XES BREAK FLAG TREND LINES -- GOLD GETS ANOTHER BOUNCE OFF SUPPORT -- JUNIOR GOLD MINERS ETF TEST MAY LOW
A BIG SUPPORT TEST AT HAND FOR QQQ AND DIA... Link for todays video. A disparity has opened up among the major index ETFs. The Russell 2000 ETF (IWM) surged at the end of June and remains well above its late June low. The Nasdaq 100 ETF (QQQ) and Dow Industrials SPDR (DIA) also surged, but barely exceeded their mid June highs and already tested important support zones. A break below said support would end the June-July advance and signal a continuation of the May decline. Chart 1 shows QQQ zigzagging higher since early June. This advance retraced 61.80% of the prior decline and met resistance from the broken support zone. With a sharp decline this week, the ETF is testing the lower trend line and support from the late June low. Failure to hold support would reverse the six-week uptrend and signal a continuation of the April-May decline. The indicator window shows the Percent Price Oscillator (PPO) moving below its signal line for the first time since early June. A move into negative territory would turn momentum bearish.
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Chart 1
Chart 2 shows DIA with a double top extending from March to early May. DIA broke double top support with a sharp decline in May and then surged back above the support break in June. Even though this surge is impressive, DIA remains well below the March-May peaks. Moreover, a rising wedge formed and the ETF broke the lower trend line this week. A break below this support from the late June low would fully reverse the six-week uptrend and call for a continuation of the May decline. The PPO moved below its signal line this week and a move into negative territory would turn momentum bearish. Chart 3 shows IWM for reference.
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Chart 2
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Chart 3
MAKE-OR-BREAK TIME FOR THE CONSUMER DISCRETIONARY SPDR ... I continue to watch the Consumer Discretionary SPDR (XLY) closely because it could be the one sector that makes or breaks the market. As noted before, consumer discretionary is the most economically sensitive sector and retailers dominate this sector. Chart 3 shows XLY testing support for the third time in five weeks. The ETF is already showing relative weakness and a break below support would signal a continuation of the May decline. This would be a bearish development for the SPDR and the market overall.
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Chart 4
Chart 4 shows the Retail SPDR (XRT) breaking above resistance last week, but failing to hold this breakout after a sharp decline this week. Sometimes a failed signal is just as potent as a signal. This weeks decline puts XRT back into the June range. A quick move back above 59.2 is needed to revive the breakout. Otherwise, chartists might see the double top support break continue to play out. The mid June lows mark key support and a break below this level would be quite bearish.
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Chart 5
USO BREAKS PENNANT RESISTANCE... Oil is getting a bounce along with the stock market and Euro early Friday. This makes sense because oil is part of the risk-on trade, which benefits riskier assets such as stocks, the Euro, oil and gold. Chart 5 shows the US Oil Fund (USO) surging to 33 and then consolidating with a pennant formation. The ETF broke above pennant resistance early Friday to signal a continuation higher. Provided this breakout holds, the next target is in the 34 area. Failure to hold the breakout and a move below 31.50 would be bearish.
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Chart 6
XLE AND XES BREAK FALLING FLAG TREND LINES... Energy stocks are following oil higher with small breakouts of their own. Chart 6 shows the Energy SPDR (XLE) surging above resistance with a move above 67 and then correcting with a decline to 65. The gap zone provided some support the last three days as a falling flag took shape. Falling flags are bullish continuation patterns. The ETF broke above the flag trend line with an early surge above 66, but I would like to see follow through above Tuesdays high to complete a breakout. A long black candlestick formed on Tuesday and the bulls need to take out this high to have confidence in a breakout. Chart 7 shows the Oil & Gas Equipment/Services SPDR (XES) with similar characteristics.
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Chart 7
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Chart 8
GOLD GETS ANOTHER BOUNCE OFF SUPPORT... The Gold SPDR (GLD) remains in a downtrend since August, but continues to firm near support from recent lows. First, lets look at a weekly chart for some perspective. Chart 8 shows GLD peaking in August and forming a descending triangle over the last year. GLD moved to the December 2011 low in May and then consolidated the last two months. A consolidation within a downtrend is usually bearish. In other words, it represents a rest within the ongoing downtrend. A break below descending triangle support would target a move towards the next support zone around 140.
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Chart 9
Chart 9 shows daily prices for more granularity. GLD surged at the end of May, but failed to follow through and formed a triangle the last 6-7 weeks. Another breakout attempt failed last week and the ETF moved back towards support. Also notice that Aroon down (red) crossed above Aroon up (green). Even though bearish evidence is stacking up, gold refuses to break support and continues to show resilience. Todays surge is positive, but a breakout is needed to fully reverse the downtrend here. On a fundamental note, the uptrend in the Dollar and recent weakness in the stock market is negative for bullion. Gold may, however, turn its attention to the great global easing and become a currency alternative again.
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Chart 10
JUNIOR GOLD MINERS ETF TESTS MAY LOW... Chart 10 shows the Junior Gold Miners ETF (GDXJ) is testing support from the May low. As its name suggests, this ETF consists of second tier mining stocks with above average risk. GDXJ remains in a downtrend overall, but firmed near the May low with an indecisive candlestick on Thursday. Notice the small body in the middle of the high-low range. This is akin to a spinning top. Bottom pickers are circling the wagons as the ETF bounces off support. As far as the downtrend is concerned, the minimum requirement for a trend reversal would be a break above the early July high. Todays bounce is looking rather feeble so far.
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Chart 11
Chart 11 shows the senior Gold Miners ETF (GDX) holding up better than GDXJ because it remains above its May low. A falling channel formed the last four weeks and the ETF is getting a bounce off the lower trend line today. Follow through with a breakout at 45 would be bullish and signal a continuation of the May advance. We could then see a move to the next resistance zone around 50-51. As with GDXJ above, a trend reversal is pure speculation at this stage and largely dependant on gold breaking out as well.
