INDUSTRIALS SPDR CHALLENGES RESISTANCE -- DOLLAR SURGES ON BETTER-THAN-EXPECTED EMPLOYMENT REPORT -- GASOLINE BREAKS DOWN AS XLE FORMS BEARISH WEDGE -- MARKING NEXT SUPPORT ZONE FOR GOLD -- GERMAN AND FRENCH INDICES HIT NEW HIGHS
INDUSTRIALS SPDR CHALLENGES RESISTANCE ... Link for todays video. The Industrials SPDR (XLI) is showing some relative strength with a surge all the way to its early November high. Also notice that this high corresponds with the September-October high and a breakout here would forge a 52-week high. Yes, XLI is less than 1% from a 52-week high. Obviously, trading turned quite volatile the last six weeks with a 6% plunge in the first half of November and a 6% surge the last three weeks. This weeks low mark first support for the three week upswing. A move below this level would provide the first sign of weakness.
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Chart 1
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Chart 2
Aerospace and defense stocks represent an important component in the industrials sector. Chart 2 shows the Aerospace-Defense ETF (PPA) tracing out a broadening formation the last three months. This industry group has a lot at stake with the fiscal cliff and the budget talks. A broadening formation shows increasing volatility and uncertainty as the swings become wider. The current swing within this formation is up with this weeks low marking first support. A move below this level would be short-term bearish and argue for at least a correction of the more recent surge.
GASOLINE BREAKS DOWN AS XLE HITS RESISTANCE... The US Gasoline Fund (UGA) broke down this week with a decline below support at 56. Chart 3 shows UGA breaking double top support in October and then retracing 50-61.80% with a rising flag/channel. The ETF peaked this week and broke channel support with a rather sharp decline. The indicator window shows MACD moving back into negative territory and below its signal line. Momentum is clearly bearish at this stage as well. A breakdown in gasoline prices suggest that demand is diminishing or supply is increasing, or a little of both. Lower gas prices could also affect the large integrated energy companies. Chart 4 shows the Energy SPDR (XLE) hitting resistance in the 71-72 area over the last two weeks. A break above 72 would keep the short-term uptrend alive and argue for higher prices. Failure in this resistance zone and a break below support at 70 would be bearish. XLE is also dependent on oil and the US Oil Fund (USO) failed at resistance for the third time this week. Chart 5 shows a rising flag taking shape in USO and a break below flag support would signal a continuation lower. Notice that CCI broke support this week.
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Chart 3
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Chart 4
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Chart 5
DOLLAR BOUNCES ON BETTER-THAN-EXPECTED EMPLOYMENT REPORT... The Labor Department reported a 146,000 increase in non-farm payrolls for November and the unemployment rate fell to its lowest level since December 2008 (7.7%). This report put a bid in the Dollar and weighed on treasuries. The Dollar also got a boost on Thursday from weakness in the Euro. European Central Bank President, Mario Draghi, lowered growth forecast and left the door open to more rate cuts. Continued weakness in the EU economy and the prospect of lower rates put pressure on the Euro. Today, we have the opposite affect for the greenback. A strong jobs number is positive for the economy and puts less pressure on the Fed to ease. Chart 6 shows the US Dollar Index ($USD) plunging to the channel trend line in mid September and then working its way higher. The trend since May 2011 is up and the recent bounce off the 79-80 keeps this channel alive. Key support is set at this weeks low and a move below this level would call for a reassessment. Chart 7 shows the US Dollar Fund overshooting the 61.80% retracement and broken resistance, but recovering this week with a surge that broke falling wedge resistance.
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Chart 6
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Chart 7
MARKING NEXT SUPPORT ZONE FOR GOLD... Despite a surge in the Dollar, gold is getting a small bounce on Friday. The Dollar and gold have been moving together the last two weeks, which is quite unusual. Both fell from 27-Nov to 5-Dec and then bounced over the last two days. I am not sure where the selling in gold is coming from, but I can offer a technical perspective on where it might be going and what it would take to change the overall trend. Chart 8 shows Spot Gold ($GOLD) in a trading range since September 2011. Even though gold is in the upper half of this range, it hit resistance in early October and moved lower the last few weeks. Broken resistance turns into support in the 1640-1650 area, which also marks the middle of the consolidation. Chart 9 shows the Gold SPDR (GLD) breaking wedge support last week and falling towards the early November low this week. The next support zone resides around 158-160. Broken resistance, the 61.80% retracement ad the channel line converge in this area. Key resistance is set at 169 for now.
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Chart 8
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Chart 9
GERMAN AND FRENCH INDICES HIT NEW HIGHS... How are things across the pond? Just ask the major European equity markets. The short answer is Ca va, merci. Chart 10 shows the German DAX Index ($DAX) surging to a new 52-week high this week. The index broke below the October lows in mid November, but erased this entire loss with a 7+ percent surge the last three weeks. Equities, it seems, are the only game in Europe as well. The indicator window shows the $DAX:$SPX ratio also hitting a new 52-week high. Note that the DAX has been outperforming the S&P 500 since June. Chart 11 shows the French CAC Index ($CAC) breaking wedge resistance with a surge above 3500 in late November. This is a 52-week high as well. Broken resistance turns into first support, while key support is set in the 3350 area. Chart 12 shows the London FTSE 100 ($FTSE) trying to join the new high club as it challenges resistance in the 5900 area. The index is outperforming the S&P 500 since early October and a breakout would be bullish - bloody bullish mate.
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Chart 10
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Chart 11
