NASDAQ 100 EQUAL-WEIGHT ETF BREAKS BIG TRIANGLE -- 10-YEAR TREASURY YIELD REACHES MOMENT-OF-TRUTH -- GOLD SPDR REACHES CENTER OF LONG CONSOLIDATION -- GOLD MINERS ETF STALLS AT SUPPORT -- HOUSING STARTS DECLINE, BUT UPTREND REMAINS
NASDAQ 100 EQUAL-WEIGHT ETF BREAKS BIG TRIANGLE... Link for todays video. The Nasdaq 100 ETF (QQQ) has been under pressure because its biggest component (Apple) fell over 20% from its late September high. Apple accounted for over 20% of the ETF in September, but now accounts for a mere 16.32% and is still the biggest holding by far. Microsoft is next at 7.54%. Even though QQQ is a great trading vehicle for large tech stocks, it is not always a good barometer for the average tech stock. Enter the Nasdaq 100 Equal-Weight ETF (QQEW), which treats all its components the same. While QQQ remains over 5% from its September high, chart 1 shows QQEW breaking this high with a big move the last few weeks. In fact, notice that QQEW broke resistance from a massive triangle. Even though this breakout is long-term bullish, note that the ETF is quite overbought for the short-term. QQEW is up some 10% since mid November and RSI moved above 70 for the first time since February. Broken resistance in the 26-26.5 area turns into first support to watch. Chart 2 shows QQQ bouncing off the lower trend line of a big channel. The Percent Price Oscillator (PPO) just turned positive and the December lows mark support just above 64.
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Chart 1
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Chart 2
10-YEAR TREASURY YIELD REACHES MOMENT-OF-TRUTH... The moment-of-truth for stock bulls and bond bears is here as the 10-year Treasury Yield ($TNX) challenges resistance from the August-October highs. Chart 3 shows $TNX surging off support and hitting resistance in the 18.5-19 area this week (1.85 - 1.9%). This zone marks a major hurdle for yields. A breakout would point to higher yields and lower Treasury prices, which would be bullish for stocks. A failure at resistance and another support test would be negative for stocks. The indicator window confirms the positive correlation between stocks and yields. The Correlation Coefficient ($TNX,$SPX) has been largely positive the last eight months.
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Chart 3
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Chart 4
The 20+ Year T-Bond ETF (TLT) could also be at a key level, but it may already be too late. Chart 4 shows TLT breaking wedge support with a sharp decline the last few weeks. Even though there is support in the 120 area from the October lows, this breakdown looks quite robust and appears to signal a continuation of the August-September decline, which would target a move below 114. Using the measured move methodology, a similar decline of 13.8 would end in the 113.2 area. This is the target as long as the breakdown holds. A close back above 124 would call for a reassessment.
GOLD SPDR REACHES CENTER OF LONG CONSOLIDATION... Even though the Dollar fell sharply the last five weeks and the Fed announced another round of quantitative easing, gold cannot hold a bid and remains in a downtrend since early October. This is a great lesson in basic technical analysis. Indicator and intermarket trends are important, but the price chart of the underlying is more important. Chartists should not let bullish external developments trump a bearish price chart. Chart 5 shows weekly candlesticks over the last two years. Long-term, GLD is in a trading range or flat trend at best. The Fibonacci Retracements Tool shows the middle of the consolidation in the 161.50 area. Also notice that broken resistance marks potential support in the 160 area and the Stochastic Oscillator became oversold. This combination puts GLD at a rather interesting juncture and I am putting it on the watchlist. A bullish signal would be triggered should the Stochastic Oscillator move above 20 and above its signal line. GLD remains bearish until such a signal.
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Chart 5
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Chart 6
Chart 6 shows daily candlesticks over the last six months. A falling wedge could be taking shape since early October. GLD firmed a bit on Wednesday, but we have yet to see any kind of bullish catalyst. At the very least, a surge above this weeks high is needed to affirm support in the 161 area and provide a bullish catalyst. A move above 168 is needed to break wedge resistance.
GOLD MINERS ETF STALLS AT SUPPORT... Several industry group ETFs within the materials sector surged over the last few weeks. We saw big moves from the Copper Miners ETF (COPX), the Metals & Mining SPDR (XME) and the Steel ETF (SLX). The Gold Miners ETF (GDX) was tied to gold and failed to rally. GDX will likely remain under pressure unless gold reverses its downtrend. Chart 7 shows GDX hitting support just above 45, but in a clear downtrend. Support in the 45 area stems from the November-December lows ad the 61.80% retracement zone. Despite some signs of support, a break above the mid December high is needed to start talking trend reversal here. I would also keep an eye on the Gold Miners Bullish Percent Index ($BPGDM), which has been in a downtrend since mid October. I am still marking resistance at 45 and a break above this level is needed to reverse the downtrend here.
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Chart 7
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Chart 8
HOUSING STARTS DECLINE, BUT UPTREND REMAINS... As noted last week, chartists can discern underlying trends in economic indicators by applying basic technical analysis techniques. Today we will look at Housing Starts and Building Permits, two data sets that come from the St. Louis Fed Economic Database (FRED). I uploaded this data using the User-Defined Index feature on a StockCharts.com Pro account. Chart 9 shows Housing Starts peaking in the 2200 area in early 2006 and breaking down a few months later. This breakdown coincided with a peak in the Home Construction iShares (ITB) and preceded a breakdown in the S&P 500. Housing Starts bottomed in early 2009, along with the broader market, but did not turn up until 2011 when the indicator broke wedge resistance in October. This breakout coincided with an upturn in ITB (green line) and a massive rally as the ETF advanced from 9 to 21 in a year (October 2011 to October 2012). Now what? Housing starts are nowhere near their 2003-2004 levels, but the trend is clearly up with the trend line marking support around 770 (770,000 starts). A trend line breakout would be negative and a break below the June 2012 low (706) would be outright bearish for the economy, the stock market and housing stocks. It aint happened yet though. Chart 9 shows Building Permits with similar chart characteristics.
Chart 9
Chart 10
