SPY AND IWM EXTEND CONSOLIDATIONS -- QQQ LEANS ON APPLE FOR RECENT GAINS -- APPLE HITS BIG RESISTANCE ZONE -- GOLD BREAKS RAFF REGRESSION CHANNEL -- SHANGHAI COMPOSITE SURGES ABOVE JULY HIGH - HANG SENG RETURNS TO BROKEN TREND LINE

SPY AND IWM EXTEND CONSOLIDATIONS ... Link for today's video. After a big move from late June to mid July, stocks turned indecisive the last few weeks as the market consolidated. Chartists can now watch the consolidation lows in the major index ETFs for signs that a correction is taking hold. For now, these lows are holding and the stock market is simply resting after a big advance. Chart 1 shows the Russell 2000 ETF (IWM) surging from 94 to 104 and then moving sideways. Notice that the ETF crossed above/below 104 over 10 times in the last four weeks. The four week low is set at 103, which marks short-term support. Selling pressure is deemed in significant as long as support holds. A push below support would signal an uptick in selling pressure and argue for a retracement of the June-July surge.

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Chart 1

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Chart 2

Chart 2 shows the S&P 500 ETF (SPY) with short-term support in the 167-168 area. With the stall over the last four weeks, upside momentum also stalled and MACD turned down. Note that momentum indicators revert to their centerlines when prices move sideways. MACD reverts towards the zero line, while RSI moves towards 50. Upside momentum is clearly waning because MACD turned down from high levels, but we have yet to see a significant increase in downside momentum. A MACD move into negative territory is required to show bearish momentum.

QQQ LEANS ON APPLE FOR RECENT GAINS... Thanks in large part to Apple, the Nasdaq 100 ETF (QQQ) has been one of the best performing ETFs since late June. Chart 3 shows QQQ finding support in the 69-70 area and surging to 77 in early August (up around 10%). Broken resistance turned support in the 74 area and held as buying pressure picked up in late July. This level remains key support for the current uptrend. The indicator window shows the 10-day Correlation Coefficient (QQQ, AAPL), which measures the degree of correlation. Positive correlation means these two are moving in the same direction. Negative correlation means these two are moving in opposite directions. Notice how this indicator turned positive in early June and remained positive the last two months. This tells us that QQQ and Apple are moving in the same direction, which makes sense because Apple accounts for around 12% of QQQ. This means QQQ traders best cue on Apple for directional clues. Before looking at Apple, note that chartists can also use the Correlation Coefficient to find assets that are negative correlation to construct a diversified portfolio.

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Chart 3

APPLE HITS BIG RESISTANCE ZONE... Apple is clearly on a tear since late June, but the stock is hitting a resistance zone that extends back to the February peak. Chart 4 shows Apple moving from support in the 380-390 area to resistance in the 470 area. The stock is up some 20% since late June and is also short-term overbought. We do not need a momentum oscillator to know that the stock is overbought after a 20% run in six weeks. The late June trend line and early August low mark first support at 450. The indicator window shows the price relative turning up the last few weeks. Despite a big move, the stock is barely outperforming the S&P 500 ETF.

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Chart 4

GOLD BREAKS RAFF REGRESSION CHANNEL ... Gold and silver were higher in early trading on Monday. According to reports, buying pressure stems from short-covering and demand from China, which is the world's largest consumer of gold. While I cannot verify the reasons, buying pressure is clearly picking up as gold broke flag resistance and silver cleared its July high. I showed Spot Gold ($GOLD) with a falling flag on Friday and prices cleared resistance with a move above 1325 today. Chart 5 shows the Gold SDPR (GLD) breaking above the Raff Regression Channel with a move above 129 on Monday. I elected to draw a Raff Regression Channel because the trend lines did not match up well for a falling flag or wedge. The Raff Regression Channel features a linear regression in the middle and two equidistant trend lines on the outside. These trend lines are based on the furthest high or low from the linear regression. The lines form a parallel channel that looks like a flag and the upper line can be used to mark resistance. GLD broke flag resistance today to signal a continuation of the prior move and targets further strength towards the 137.5 area. According to classic technical analysis, flags fly at half-mast. The first move was around 15 points, and we can add this to the flag low for a target in the 137.50 area. There is also resistance here from the late May and early June highs. A strong breakout should hold. Therefore, a move back below 126.5 would show weakness and jeopardize this breakout. Chart 6 shows the Silver ETF (SLV) breaking above its July high and outperforming gold in August. Next resistance is set in the 22 area.

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Chart 5

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Chart 6

SHANGHAI COMPOSITE SURGES ABOVE JULY HIGH... Chinese stocks moved sharply higher on Monday with the Shanghai Composite ($SSEC) and Hang Seng Index ($HSI) surging over 2%. Chart 7 shows the Shanghai Composite finding support in the 1950 with a volatility spike in late June and consolidation in July. With a surge over the last three weeks, the index broke above its July high. While this move looks medium-term bullish, the long-term trend remains down. Notice that the index formed lower highs in early 2012 and early 2013. Lower lows followed these lower highs. The combination of lower lows and lower highs equates to a downtrend. The indicator window shows the price relative ($SSEC:$SPX ratio) in a clear downtrend with a new low in late July. This means the Shanghai Composite is underperforming the S&P 500.

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Chart 7

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Chart 8

Chart 8 shows the Hang Seng Index moving back above 22200 with a sharp move on Monday. Note that these are end-of-day (EOD) charts and today's data will be updated after the market close. I added Monday's bar by drawing small trend lines. Despite today's surge in the Hang Seng, the overall trend appears to be down. Notice that the index broke the October trend line and April low with a sharp decline in June. The rally back above 22000 returned to the broken trend line, which turns resistance. Thus far, $HSI has a lower high in May and lower low in June. The rally above 22000 has not changed this fact or the overall downtrend.