RUSSELL 2000 ETF TURNS BACK AT CHANNEL RESISTANCE -- TREASURY BOND ETF FORMS CHANNEL WITHIN A CHANNEL -- US DOLLAR INDEX BREAKS OCTOBER HIGHS -- GOLD BREAKS FLAG SUPPORT WITH SHARP DECLINE -- STRENGTH IN DOLLAR WEIGHS ON OIL
RUSSELL 2000 ETF TURNS BACK AT CHANNEL RESISTANCE... Link for todays video. Stocks surged on Thursday and even followed through on Friday morning, but this strength did not last long as selling pressure kicked in after the initial pop. Perhaps the stock market has election jitters. Whatever the case, the Russell 2000 ETF (IWM) hit resistance from its channel trend line to maintain its short-term downtrend. Chart 1 shows IWM zigzagging lower since mid September. A clear channel has taken shape with the upper trend line marking resistance just above 83. IWM surged above 82 on Thursday, but has yet to follow through on this surge and break channel resistance. A follow through breakout is needed to reverse this seven week slide. The indicator window shows the IWM:SPY ratio triangulating the last four months. A potential higher low could be forming in October, but we need to see a breakout to signal relative strength in IWM (small-caps) again. This would be positive for the overall market. Note, however, that a break below the October low would signal renewed relative weakness.
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Chart 1
Chart 2 shows the S&P 500 Equal-Weight ETF (RSP) in a short-term downtrend as well. RSP surged off support in the 51.5 area, but has yet to follow through and break flag resistance. The indicator window shows the price relative forming a higher low in early October and exceeding its September high. RSP is starting to outperform its market-capitalization-weighted brother SPY. This means small-caps and mid-caps within the S&P 500 are starting to outperform the large-caps within the index.
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Chart 2
TREASURY BOND ETF FORMS CHANNEL WITHIN A CHANNEL... The Labor Department reported that the economy added 171,000 jobs in October and the unemployment rate edged up to 7.9%. With expectations for an increase of 120,000, todays report was well above expectations. Treasuries sold off on the news as the 20+ Year T-Bond ETF (TLT) declined in early trading on Friday. TLT rebounded during the session, but the overall trend remains down. Chart 3 shows TLT with a large falling channel and a smaller falling channel. The large channel extends from the late July high and the smaller channel extends from the October high. With the decline over the last two days, chartists can mark first resistance at this weeks high (123.43). A move above this level would break the October channel and reverse the short-term downtrend. The October highs mark key resistance. A move above 125 would break these highs and reverse the medium-term downtrend. As the chart now stands, the downtrend in TLT is positive for stocks because stocks and treasuries are negatively correlated. Chart 4 shows the 7-10 year T-Bond ETF (IEF) forming a large triangle.
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Chart 3
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Chart 4
US DOLLAR INDEX BREAKS OCTOBER HIGHS... The US Dollar Index ($USD) is making a bid to reverse the downtrend from late July to mid September. A better-than-expected jobs report suggests a stronger economy and this could put a damper on quantitative easing, which would positive for the greenback. Chart 5 shows the US Dollar Index working its way higher since mid September, which, by the way, is when the S&P 500 peaked. The gains expanded as the index surged to 80.53 today (green bar) and broke above its October highs. This breakout is bullish with first support marked at the 79.50 level. A break below 79.50 would put a rising wedge in play and a break below 79 would signal a continuation of the prior decline. The indicator window shows +DI barely holding above DI to keep directional movement bullish. Chart 6 shows the US Dollar Fund (UUP) surging and then forming a flat flag the last seven days. Todays break above flag resistance targets a move to the 22.22 area.
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Chart 5
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Chart 6
GOLD BREAKS FLAG SUPPORT WITH SHARP DECLINE... Gold is getting hit by strength in the Dollar and the possibility of less quantitative easing. Chart 7 shows the Spot Gold ($GOLD) breaking support in mid October and then bouncing back towards 1720 the prior seven days. A rising flag formed and broken support turned into resistance. With a move below 1700 today, gold broke flag support to signal a continuation lower. The 50% retracement and late August flag mark first support in the 1660 area. Broken resistance and the 61.80% retracement mark second support in the 1330 area. Chart 8 shows the Gold SPDR (GLD) falling below 165 and broken support turning into resistance at 168. The indicator window shows Aroon Down (red) crossing above Aroon Up (green) in mid October.
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Chart 7
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Chart 8
STRENGTH IN DOLLAR WEIGHS ON OIL... Strength in the Dollar hit oil hard as well. Chart 9 shows the US Oil Fund (USO) breaking down in mid September, stalling into October and then breaking down again in late October. The ETF formed a rising flag the prior five days and broke flag support with Fridays sharp decline. The next support zone resides around 29-30 from the June lows. For resistance, the mid September trend line marks first resistance and the October highs mark key resistance. Chart 10 shows Spot Light Crude ($WTIC) for reference. Note that momentum resistance is set at 50 for the Commodity Channel Index (CCI).
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Chart 9
