IWM AND MDY RECOVER AFTER WEAK OPENINGS -- TREASURIES BOUNCE IN FLIGHT TO SAFETY -- EURO HITS KEY RETRACEMENT AND MOVING AVERAGE -- GOLD BOUNCES OFF RANGE SUPPORT -- COPPER BREAKDOWN SIGNALS A CONTINUATION LOWER
IWM AND MDY REOVER AFTER WEAK OPENINGS... Link for todays video. Events in Cyprus triggered selling pressure that started with Asian stocks, continued in Europe and extended to the US on the open. The Hang Seng Index ($HSI) fell 2% and the Nikkei 225 ($NIKK) fell 2.71%. European equities were led lower by the Italian Milan Index ($MIB) and German DAX Index ($DAX), both of which were down around 1%. US stocks started the day weak, but immediately bounced and were trading off their lows at midday. Frankly speaking, I do not think events in Cypress will affect shopping on Main Street USA. Turning to the price charts, the major index ETFs were up sharply in March and ripe for a correction or pullback. The Russell 2000 ETF (IWM) and the S&P MidCap 400 SPDR (MDY) were up over 5% from their late February lows. Chart 1 shows MDY breaking above its February high and recording a new high last week. Broken resistance in the 202.5-204 area turns first support. Medium-term, the late February low marks key support. In the meantime, I am still watching three indicators for a change in the medium-term trend: the Raff Regression Channel, the Aroons and the Aroon Oscillator. A close below the lower line of the Raff Regression Channel and bearish signals from the Aroon indicators would be bearish. A bearish Aroon signals when Aroon Down crosses above Aroon Up and the Aroon Oscillator moves below -50. These three indicators show no evidence of a downtrend yet. Chart 2 shows IWM with similar characteristics.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
TREASURIES BOUNCE IN FLIGHT TO SAFETY ... The world markets moved to risk-off on Monday. Stocks, oil, industrial metals and the Euro fell. US Treasuries and the US Dollar rose. Note, however, that the Dollar has been acting like a risk asset since early February because both the Dollar and stock market moved substantially higher the last 6-7 weeks. This means the Dollar and stock market were positively correlated the last six weeks. Nevertheless, the Dollar attracted money as a safe-haven asset today. US Treasuries also acted like risk-off assets today as the 20+ Year T-Bond ETF (TLT) surged above 116. Chart 3 shows TLT breaking below 115 in early March, but quickly recovering with a move back above. Could this be a bear trap? Yes, but the medium-term trend remains down for TLT. In other words, this is still just a bounce within a bigger downtrend. It has been nothing but lower lows and lower highs since December. A break above the late February high is needed to reverse this string and start an uptrend in TLT. The equity markets need to pay attention because TLT and SPY are negatively correlated. An upside breakout in TLT would be medium-term bearish for stocks. Chart 4 shows the 10-year Treasury Yield ($TNX) with the late February lows marking support.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
EURO HITS KEY RETRACEMENT AND MOVING AVERAGE ... Events in Cyprus weighed on the Euro Currency Trust (FXE). The trend since early February is clearly down, but the ETF could be near support as a key retracement and long-term moving average come into play. Chart 5 shows FXE falling over 5% in six weeks, which is a huge move for a currency. With this move, FXE is near a potential support zone from the 50% retracement, the December low and the 200-day moving average. The decline slowed in March as the ETF established resistance just above 130 this month. A break above the March highs is needed to signal a successful support test and reverse the six week slide. The Euro could bounce if Cypress were to reverse its weekend decision to tax banking deposits.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
Chart 6 shows the US Dollar Fund (UUP) surging above 22.40 at the beginning of March and turning choppy the last two weeks. UUP became overbought after the surge from 21.6 to 22.6 and was ripe for a corrective period. Broken resistance levels and the 200-day moving average marking a big support zone in the 22.20 area. Short-term, I would mark support at the March lows. A break below these levels would argue for a retracement of the February-March advance.
GOLD BOUNCES OFF RANGE SUPPORT... Despite a strong Dollar, the Gold SPDR (GLD) is getting a bid today and bouncing off a support zone that extends back to late 2011. Chart 7 shows GLD with weekly bars since October 2010. After breaking above 180 in August 2011, the ETF declined sharply in September and then moved into a trading range. GLD bounced off the 150 area in December 2011 and May 2012. With a move higher the last two weeks, GLD may be getting its third bounce. A falling channel defines the five-month downtrend with resistance at 160 ($1660 for spot gold).
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
Chart 8 shows daily candlesticks to add more detail to this channel. Notice that broken support in the 158-160 area turns into resistance. This confirms resistance at the channel trend line. The indicator window shows GLD and the US Dollar Fund. Even though UUP surged from 20-Feb to mid March, GLD actually firmed and traded flat. This signals that inverse relationship between gold and the Dollar is on the rocks. Both gold and the Dollar are up today.
COPPER BREAKDOWN SIGNALS A CONTINUATION LOWER... Chart 9 shows Spot Copper ($COPPER) plunging in 2011 and then moving into a large consolidation in 2012. First, notice that broke support in the 3.9 area turned into resistance in early 2012. Second, notice that lower highs formed in September and again in February. These lower highs show weakening demand. Copper broke the November trend line with a sharp decline in February, consolidated in March and broke down further this week. This breakdown signals a continuation of the 2011 decline and projects a move below 3. Key resistance is now set at 3.80 (2013 highs). A breakdown in copper is potentially negative for US stocks because copper and the S&P 500 have been positively correlated the last few years. Chart 10 shows the Copper ETF (JJC) breaking down in February and barely bouncing last week. The ETF moved to a new low for 2013 and the August low marks the next potential support area.
(click to view a live version of this chart)
Chart 9
