QQQ FOLLOWS THROUGH ON HAMMER -- IWM TRACES OUT A FLEXIBLE MORNING STAR REVERSAL -- BROKEN SUPPORT TURNS FIRST RESISTANCE FOR FINANCE SPDR -- 200-DAY SMA COMES IN PLAY FOR STOCKS, TREASURIES AND THE DOLLAR -- OIL CHALLENGES FIRST RESISTANCE
QQQ FOLLOWS THROUGH ON HAMMER... Link for todays video. Programming note: I will be taking some time off for Thanksgiving and be back on November 27th. Stocks surged on Monday with the Nasdaq 100 ETF (QQQ) and the Russell 2000 ETF (IWM) leading the charge. These two led the way lower in early November and had the most to recover. It is kind of like stretching a rubber band. The further you stretch, the bigger the subsequent rebound when you let go. The rebound started on Friday as stocks dipped in early trading and recovered by the close. Chart 1 shows QQQ forming a small indecisive candlestick on Thursday and a hammer on Friday. Thursdays candle formed with a relatively narrow range to indicate indecision throughout the day. The hammer shows selling pressure during the day with the intraday low. Fridays close was near the high of the day, which showed a decent recovery by the bulls. Stocks followed through on Monday as QQQ gapped up and surged above 63. At this point, this advance still looks like an oversold bounce within a bigger downtrend.
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Chart 1
There are two resistance levels to watch. First, the October trendline marks resistance in the 64.5 area and the Commodity Channel Index (CCI) marks momentum resistance just above zero. Second, a small consolidation formed during the last week of October and the first week of November. This yellow zone marks the second resistance area to watch in the 65-66 area. Also notice the flattening 200-day moving average in this area. Todays gap is short-term bullish as long as it holds. A move back into the gap zone would question bullish resolve.
IWM TRACES OUT A FLEXIBLE MORNING STAR REVERSAL... Chart 2 shows the Russell 2000 ETF with a long black candlestick last Wednesday, a spinning top on Thursday and a strong recovery on Friday. The ETF gapped up on Monday and surged over 1%. Take away Fridays candlestick and the three candlestick pattern looks like a morning star. Steve Nison notes that chartists should show a little flexibility or discretion when analyzing candlestick patterns. The four day pattern looks like a sharp decline, stall and reversal, which captures the essence of the morning star. The yellow zone marks the first resistance level to watch. This area includes the flattening 200-day moving average and the September trendline.
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Chart 2
BROKEN SUPPORT TURNS FIRST RESISTANCE FOR FINANCE SPDR... Last week I noted that the Finance SPDR (XLF) and the Industrials SPDR (XLI) broke support to join the rest of the bearish pack. These two are bouncing on Monday, but it is still too early to negate these support breaks. A basic tenet of technical analysis is that broken support turns into first resistance. The idea is that a valid support break should hold. A move back above broken support would suggest a bear trap of sorts. Chart 3 shows XLF breaking support in the 15.5 area and this zone turning into first resistance. I am drawing the line in the sand at 15.75. A break above this level would negate the support break and call for a reassessment. Also note that XLF became way oversold with last Wednesdays long black candlestick. Some sort of bounce or consolidation is needed to alleviate this oversold condition. Follow through would turn a mere oversold bounce into something more. Chart 4 shows the Industrials SPDR with broken support turning first resistance in the 36.5 area.
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Chart 3
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Chart 4
200-DAY SMA COMES INTO PLAY FOR THE S&P 500, TREASURIES AND THE DOLLAR... The 200-day moving average is proving its worth for the S&P 500, the Dollar Bullish ETF (UUP) and the 20+ Year T-Bond ETF (TLT). I noted last Monday that the S&P 500 was oversold and hit its 200-day moving average. The index pushed through this key average last week, but recovered on Monday with a surge back to the 200-day moving average. As with early June, it looks like the bulls are not quite ready to allow a break. Chart 5 shows the index bouncing off the 62% retracement and moving back above its 200-day on Monday. While this move affirms support in the 1350 area, the index is already near first resistance in the 1400 area.
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Chart 5
Chart 6 shows UUP surging the last two months and hitting resistance from broken support and the 200-day moving average. This is an important resistance area to watch as UUP backed off this zone today. A failure here and continuation of the July-September advance would be quite bullish for stocks, which are negatively correlated with the S&P 500. A move above last weeks high would break the 200-day and be Dollar bullish, which would be negative for stocks.
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Chart 6
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Chart 7
Chart 7 shows the 20+ Year T-Bond ETF bouncing off its rising 200-day moving average in late October and breaking resistance in early November. TLT remains in a long-term uptrend and recent strength is a negative for stocks. TLT is weak today as the market embraces a little risk, but the breakout is still holding. The 200-day moving average and late October lows turn first support in at 120. A break below this level is needed to facilitate a sustainable advance in stocks.
OIL CHALLENGES FIRST RESISTANCE ... Strength in stocks and weakness in the Dollar put a bid into oil on Monday. Chart 8 shows the US Oil Fund (USO) firming at 31 and surging above 32 on Monday. This bounce, however, is still just an oversold bounce within a bigger downtrend. The mid September trendline and early November high mark first resistance at 33. Follow through is needed to break resistance and reverse the two month fall. Chart 9 shows Spot Light Crude ($WTIC) with resistance at 90. Oil finished around 89 on Monday and broke the trendline. I would watch resistance at 90 because the actual commodity is more important than the ETF.
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Chart 8
