GOLD AND SILVER ETFS FALL BACK TO POTENTIAL SUPPORT -- GOLD MINERS ETF AND BPI EXTEND DOWNTRENDS -- NET NEW HIGHS SURGE TO SEPTEMBER LEVELS -- AD LINE AND AD VOLUME LINE CHALLENGE 2012 HIGHS -- NON-FARM PAYROLLS EXTEND POSITIVE RUN

GOLD AND SILVER ETFS FALL BACK TO POTENTIAL SUPPORT... Link for todays video. Gold and silver were knocked quite hard after the Fed minutes on Thursday and continued lower on Friday. Some Fed members think that quantitative easing will slow or end sometime in 2013. This revelation comes after the Fed just announced QE3 in mid September and this round was supposed to be open-ended. Chart 1 shows the Gold SPDR (GLD) peaking in early October and moving sharply lower the last few months. Seems like the gold market was already discounting quantitative easing. Even though the trend remains down, GLD is still trading at an interesting juncture that warrants attention. Notice that GLD surged off support in the 158 area and then fell back to this area. The 158 area marks support from broken resistance and the 61.80% retracement. With this weeks sharp decline, chartists can mark first resistance at this weeks high. A successful support test and break above this level would provide the first bullish signal for bullion. Channel resistance is set at 167 and it would take a break above this level to fully reverse the downtrend. Chart 2 shows the Silver Trust (SLV) with a similar pattern at work.

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Chart 1

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Chart 2

GOLD MINERS ETF AND BPI EXTEND DOWNTRENDS... The decline in gold weighed on the Gold Miners ETF (GDX) as it fell back to support as well. I should note, however, that support is just potential support because the trend is clearly down. Resistance levels are expected to hold during downtrends and support levels are expected to fold. GDX broke down in October and has yet to forge a higher peak to reverse this downtrend. The last two peaks mark a clear resistance level at 47.50. A break above these peaks is needed to reverse the downtrend. The indicator window shows the Gold Miners Bullish Percent Index ($BPGDM) trending lower since October as well. A break above 40% is needed to reverse the downtrend in this breadth indicator. Chart 4 shows the Silver Miners ETF (SIL) breaking support and broken support turning into resistance.

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Chart 3

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Chart 4

NET NEW HIGHS SURGE TO SEPTEMBER LEVELS... The surge in stocks over the last few days pushed Net New Highs for the S&P 1500 to levels not seen since September. Net New Highs equals new highs less new lows. This difference is then divided by total issues to show Net New Highs as a percentage of total issues. The lower indicator window on chart 5 shows Net New Highs surging above 15% on Wednesday and finishing above 14% on Thursday. Notice that Net New Highs turned positive again in late November and have been positive ever since. The main chart window shows the cumulative Net New Highs line turning up at the end of November and moving above its 10-day SMA. This indicator is firmly bullish as long as the cumulative line remains above its 10-day SMA (rising). Note that the following breadth charts were created with a StockCharts.com Pro account. Pro users can upload data to create their own indicators. Sorry, these charts are not linked to a live SharpChart because the data is "private userdata".

Chart 5

AD LINE AND AD VOLUME LINE CHALLENGE SEPTEMBER HIGHS ... Chart 6 shows the AD Line for the stocks in the S&P 1500. Stocks from the S&P 500, S&P MidCap 400 and S&P SmallCap 600 form this broad index. The majority of stocks are small and mid caps, which means the AD Line is a good measure of their performance. An advance counts as +1 and a decline as -1, regardless of market capitalization or volume. This means the smallest companies carry the same weight at the largest companies. The AD Line is meeting some resistance from the 2012 highs, but remains in a clear uptrend since the late November breakout. Notice that the AD Line is in gray and the black line is a 5-day EMA of the AD Line. I am basing support and resistance breaks on this 5-day EMA because it smooths the jaggedness of the raw AD Line. The 5-day EMA established support with lows in mid-late December. The bulls are clearly in control as long as these lows hold.

Chart 6

Chart 7

Chart 7 shows the AD Volume Line for the stocks in the S&P 1500. This indicator favors the volume leaders within the index, which happen to be the large-caps. I am also using a 5-day EMA (black line) to filter out the volatility of the daily line. The indicator has been flat throughout 2012 with a large triangle taking shape. With the breakout in late November and the December surge, the indicator is near the September high. Personally, I am quite interested in the swings, which are marked by the support and resistance breaks (green and red lines). The late December low marks upswing support and the bulls have the edge as long as this level holds.

NON-FARM PAYROLLS EXTEND POSITIVE RUN... Treasuries were dealt another blow with a positive non-farm payroll report on Friday. The Labor Department reported an increase of 155,000 non-farm payrolls and revised the November number upwards. As chart 8 shows, non-farm payrolls have increased each month for over two years now. There were a few months where growth was below 100,000, but most months have seen growth in excess of 100,000 jobs. Even though some may question the quality of this jobs report, the trend here is clearly more positive than negative. It may not be great, but it certainly aint bad. As in 2004, 2005 and 2006, positive job growth is also positive for the long-term trend in the S&P 500. Note that this chart is not linked to a live SharpChart because the data is "private userdata".

Chart 8

The indicator window shows the 10-year Treasury Yield ($TNX) in red and the S&P 500 in black. These two were moving together until the second half of 2011. Stocks moved sharply higher from October 2011 to the end of 2012, but the 10-year Treasury Yield moved lower (blue arrows). The S&P 500 hit a 52-week high recently, while the 10-year Treasury Yield recorded a 52-week low in October 2012. Something has to give here and it looks like Treasury yields are making a move higher.

10-YEAR TREASURY YIELD BREAKS RESISTANCE... Chart 9 shows the 10-year Treasury Yield surging above its September highs with a strong move this week. This means Treasury bonds are moving lower. This weeks range breakout is bullish and targets further strength toward the next resistance zone around 24 (2.4%). A move to this level would imply a sharp decline in Treasuries, which would be bullish for stocks. The indicator window shows the Percent Price Oscillator (PPO) turning up and breaking into positive territory for the first time since May 2011.

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Chart 9

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Chart 10

Chart 10 shows monthly bars for the 10-year Treasury Yield over the last 20 years. That is one long downtrend. $TNX is near the lower trend line of the falling channel and momentum is turning up. Notice that MACD bounced off the 4 area in early 1999, mid 2003, early 2009 and now. The upturn in MACD is positive for long-term momentum, but it is still too early to call for a reversal of the 20 year downtrend. The highs from 2009-2010 and the upper trend line mark resistance at 40 (4%).