SMALL-CAPS AND MID-CAPS SHOW RELATIVE WEAKNESS -- IWM AND MDY BREAK 200-DAY MOVING AVERAGES -- NEW LOWS SURGE ON THE NYSE AND NASDAQ -- METALS & MINING SPDR BREAKS TO NEW LOW -- GOLD SURGES OFF LONG-TERM SUPPORT (NO BREAKOUT YET)
SMALL-CAPS AND MID-CAPS SHOW RELATIVE WEAKNESS... Link for todays video. Chart 1 shows the performance for five major index ETFs since June 4th, which is when stocks started a seven week advance. By starting at this level, we can see which ETFs are holding most of their gains and which are faltering. The green line shows the Russell 2000 ETF (IWM) surging with an 11% gain in early July. With a decline over the last three weeks, this gain shrunk to just 5%. The yellow line shows performance for the S&P MidCap 400 SPDR (MDY), which has struggled all along. MDY was the second leading performer in early July, but the decline over the last three weeks turned it into the weakest performer. I consider relative weakness in small-caps and mid-caps is negative for the market overall. These stocks are less diversified and have less business exposure overseas. This means they are more domestically oriented and more dependent on the US economy.
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Chart 1
IWM AND MDY BREAK 200-DAY MOVING AVERAGES... With a sharp decline the last five days, the Russell 2000 ETF (IWM) and S&P MidCap 400 SPDR (MDY) broke their 200-day moving averages. Chart 2 shows IWM breaking down in May, surging in June-July and then plunging below support this week. The rising 200-day moving average is at 76.83 and the ETF is trading just below it on Wednesday. Overall, I think the June-July surge marked a countertrend advance within a bigger downtrend. This weeks break signals that the bigger downtrend is resuming.
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Chart 2
Chart 3 shows MDY peaking near broken support (yellow area) and moving below its 200-day moving average this week. The price relative (MDY:SPY ratio) moved to its lowest level of the year this week. This price relative peaked in February and MDY has been underperforming for some five months.
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Chart 3
NEW LOWS SURGE ON THE NYSE AND NASDAQ... Selling pressure is spreading as the number of new lows expands and the number of new highs shrinks. Chart 4 shows NYSE New 52-week Highs ($NYHGH) in green and NYSE New 52-week Lows ($NYLOW) in red. $NYHGH is the symbol used in the main chart window. $NYLOW was added as an overlay using Price (same scale). This puts both plots on the same scale and allows for comparisons. It is easy to see new highs outpacing new lows when the green area is above the red. Selling pressure started increasing in early April as new lows expanded into May. The NY Composite ($NYA) broke support as new lows exceeded 100 in mid May. Looking at current conditions, new highs have been stronger since early June, but new lows have been expanding since mid June (red arrows). Notice that new lows exceeded 100 as the NY Composite broke support this week. Chart 5 shows Nasdaq New 52-week Lows ($NALOW) surging above 100 this week as well. Users can click this chart to see the settings and add it to their favorites list.
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Chart 4
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Chart 5
METALS & MINING SPDR BREAKS TO NEW LOW... In another sign of weakness in the global economy, the Metals & Mining SPDR (XME) broke to a new 52-week low. Chart 6 shows XME breaking triangle support in February and falling to a new low in May. After consolidating for almost two months, the ETF broke support with a sharp decline the last three days. At the risk of stating the obvious, new lows occur in downtrends and are sign of weakness. The indicator window shows the price relative (XME:SPY ratio) declining over the past year. This indicator also hit a new low as XME shows relative weakness. Chart 7 shows the Coal Vectors ETF (KOL) with similar characteristics. Chart 8 shows the Shanghai Composite ($SSEC) testing its lows after a sharp decline since early May. A increase in demand for basic materials is likely to start in China and traders should watch this market for first clues.
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Chart 6
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Chart 7
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Chart 8
GOLD SURGES OFF LONG-TERM SUPPORT (NO BREAKOUT YET)... Talks of further quantitative easing from the Fed pushed money into gold on Wednesday. Chart 9 shows weekly bars for the Gold SPDR (GLD) over the last three years. The trend since August 2011 is down as a large descending triangle takes shape. Pattern confirmation with a support break would then target a move to the 130 area. Should GLD hold support, chartists should watch resistance at 160 for an upside breakout. The indicator window shows the MACD-Histogram, which measure the difference between MACD and its signal line (9-period EMA). The MACD-Histogram has been negative since March and a move into positive territory would indicate that MACD moved above its signal line. Such a move would be positive for momentum and would confirm a breakout at 160 in GLD.
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Chart 9
Details of the current consolidation can be found on the six month candlestick chart. Chart 10 shows GLD with a narrowing consolidation since mid May. A triangle is forming with resistance at 158 and support at 150. These are the first levels to watch for a breakout. The indicator window shows Aroon Up remaining below Aroon Down. Aroon Up needs to break above Aroon Down to confirm a breakout on the price chart. I will remain bearish towards gold until there is a convincing breakout. Chart 11 shows the Silver Trust (SLV) for reference.
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Chart 10
