SETTING SUPPORT FOR THE CURRENT UPSWING -- QQQ FORMS SPINNING TOP AT RESISTANCE -- GOLD MINERS ETF BOUNCES OFF FIBONACCI RETRACEMENT -- SEMICONDUCTOR SPDR STARTS OUTPERFORMING -- MV SEMICONDUCTOR ETF SURGES TO RESISTANCE -- TAIWAN SEMI LEADS AS INTEL LAGS
SETTING SUPPORT FOR THE CURRENT UPSWING... Link for todays video. The current two-week stock market advance is the biggest since September. The Russell 2000 ETF (IWM) is up around 7%, the Nasdaq 100 ETF (QQQ) is up around 6% and the S&P 500 ETF (SPY) is up around 4.5%. We do not need a momentum oscillator to know that these ETFs are short-term overbought. If we are to believe the financial media, fiscal cliff optimism spurred this two week advance. Never mind that stocks were severely oversold in mid November. On November 15th, the two week rate-of-change was -7% for IWM and QQQ, and -5% for SPY. Thus, the markets have gone from oversold to overbought in two weeks time. This is starting to remind me of August-September 2011, which is when SPY had ten 5% swings in two months. Should stocks turn down from here, the financial media will no doubt point to the fiscal cliff stalemate. In any case, chart 1 shows SPY surging into its resistance zone this week. In addition to overbought conditions, there are three items pointing to resistance. Broken support, the 50-61.80% retracement zone and the early November highs. Also note that RSI is trading in its resistance zone (50-60). At the very least, the market looks ripe for a pullback or consolidation.
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Chart 1
I am using the Raff Regression Channel to define the current upswing. The middle line is a linear regression, while the outer lines are equidistant and parallel to the linear regression. The distance of these lines is based on the furthest high-low from the linear regression. The line starts from the closing low (15-Nov) and extends to the closing high (currently 29-Nov). Should SPY close higher today, I would extend the Raff Regression Channel to this close. The lower trend line and Wednesdays low mark first support at 139. A move below this level would reverse the current upswing and call for a continuation of the October-November decline.
QQQ FORMS SPINNING TOP AT RESISTANCE ... Chart 2 shows QQQ hitting resistance around 66 and stalling with a spinning top candlestick on Thursday. These candlesticks feature small bodies (open-close range) and relatively long upper lower shadows (high-low). Like doji, spinning tops reflect indecision that can sometimes foreshadow a short-term trend reversal. The Raff Regression Channel, Wednesdays low and a buffer were used to mark upswing support at 64.
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Chart 2
GOLD MINERS ETF BOUNCES OFF FIBONACCI RETRACEMENT... The Gold Miners ETF (GDX) bounced off the 61.80% retracement in mid November, but has yet to follow through and produce a breakout. Chart 3 shows GDX bouncing off the 61.80% retracement at 46 with a gap higher. The gap looked in trouble with Wednesdays weak open, but the ETF recovered and closed above 47. Even though the ability to hold this gap is positive, a break above 49.2 is needed to reverse the current downtrend. Notice how broken support turned into resistance in this area.
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Chart 3
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Chart 4
Chartists can also watch the Gold Miners Bullish Percent Index ($BPGDM) for clues on internal strength. The Bullish Percent Index measures the percentage of stocks on a P&F buy signal (Double Top Breakout). Chart 4 shows this index breaking support in mid October and moving lower the last eight weeks. There was a small bounce to 45, but the index fell back this week. A break above 45% would signal an upturn in the Bullish Percent Index and be positive for GDX.
SEMICONDUCTOR SPDR STARTS OUTPERFORMING... The Semiconductor SPDR (XSD) set a bear trap in mid November and then surged above its early November high. Chart 5 shows XSD breaking below support in mid November, forming a hammer and then surging above the support break the very next day. This bullish three-candlestick sequence signaled the start of a strong advance that may have medium-term consequences. Notice that the SPDR broke the September trend line and is now challenging resistance from the early November high. A clean breakout would be medium-term bullish. The indicator window shows the price relative (XSD:SPY ratio) forming a higher low in mid November and breaking above its prior high. This means XSD is starting to outperform the broader market, which is also positive. Despite these positive signs, keep in mind that XSD is short-term overbought after a 9% surge in as many days. Even with a resistance breakout, a pullback or consolidation is needed to alleviate these overbought conditions and set the stage for another move higher. The early bird may get the worm, but the second mouse gets the cheese as a discount. XSD is a broad-based ETF with 52 stocks and the weightings are fairly even. For example, Cree Inc (CREE), the largest component, accounts for just 3.39% of the ETF.
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Chart 5
MV SEMICONDUCTOR ETF SURGES TO RESISTANCE... The Market Vectors Semiconductor ETF (SMH) is also showing signs of life (sans Intel). Chart 6 shows SMH holding support near the October lows and surging to its resistance zone. The October-November highs mark resistance in the 32.25 area. A break above these highs would be medium-term bullish. The indicator window shows MACD with a bullish divergence over the last two months. Daily MACD is based on daily closing prices, which means a divergence should be based on closing prices as well. The gray dotted line in the indicator window shows Intel closing just below its October low in mid November. A lower low in the stock and higher low in the indicator forms a bullish divergence. More importantly, MACD moved above its signal line last week and into positive territory this week. I would consider momentum bullish as long as MACD holds above the -.10 level. Note that SMH is not a broad-based ETF and the top two holdings (INTC and TSM) account for over 33% of the ETF.
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Chart 6
TAIWAN SEMI LEADS AS INTEL LAGS... The top two components in the Market Vectors Semiconductor ETF couldnt be more different. Intel (INTC) is the big chipmaker with lots of exposure to the PC industry. Taiwan Semiconductor (TSM), a contract manufacturer, is the worlds largest chipmaker by revenue. TSM makes chips for Qualcom (QCOM), AMD and Nvidia (NVDA). Rumors are circulating that Apple may switch from Samsung to TSM in the future. Chart 7 shows INTC breaking down in late August and hitting a 52-week low in late November. Chart 8 shows TSM hitting a 52-week high this week and outperforming the market since late July.
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Chart 7
