SPY EXTENDS BREAKOUT WITH A GAP -- HOME CONSTRUCTION ISHARES CHALLENGES WEDGE TREND LINE -- RETAIL SPDR RETAKES SUPPORT BREAK -- APPLE FALLS TO FIRST POTENTIAL SUPPORT ZONE -- FRENCH AND GERMAN INDICES CHALLENGE AUGUST HIGHS
SPY EXTENDS BREAKOUT WITH A GAP... Link for today's video. The S&P 500 ETF (SPY) ended its correction with a breakout last week and surge above 168 this week. First, I think we can all agree at the long-term trend for SPY (aka The Stock Market) is up. This means short-term declines are viewed as corrections or pullbacks within that uptrend. Sure, one of these declines will overstay its welcome and evolve into a bigger downtrend, but we have yet to see that happen. Chart 1 shows SPY filling the late August gap with a surge above flag/wedge resistance at 66. SPY continued higher with another gap that filled the mid August gap. How's that for strength? A gap up filling a gap down sounds like an island reversal. In any case, there is a clear breakout in play and this signals a resumption of the bigger uptrend. Broken resistance in the 166 area turns first support.
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Chart 1
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Chart 2
Chart 2 shows the Russell 2000 ETF (IWM) breaking above 103 to fill the late August gap. Also note that IWM broke wedge resistance to reverse the short-term downtrend. As with SPY, this short-term downtrend was a correction within a bigger uptrend. Broken resistance in the 102-103 area turns first support. A move below 102 would invalidate the breakout and call for a reassessment. The August lows now mark key support in the 100 area.
HOME CONSTRUCTION ISHARES CHALLENGES WEDGE TREND LINE... I wrote about the Home Construction iShares (ITB) and the head-and-shoulders support break several times over the last two months. This pattern was first featured in the Market Message on July 17th. Even though this pattern was confirmed with a support break in mid August, note that ITB did not fall very much and chart 3 shows a falling wedge taking shape on the weekly chart. Falling wedge patterns are typical for corrections within bigger uptrend. Notice that ITB found support near the consolidation in late 2012. The ETF is now challenging wedge resistance with a bounce this week. This is the first step towards a breakout and resumption of the long-term uptrend. The indicator window shows StochRSI breaking to its highest level in three months and edging above .50 (the centerline). The momentum cup is half full (bullish) when StochRSI is above .50
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Chart 3
RETAIL SPDR RETAKES SUPPORT BREAK... The Retail SPDR (XRT) is playing catch-up by moving above broken support with a surge the last two days. Chart 4 shows XRT ending a 5-week downtrend with the move above 80. Notice that XRT gapped up and this little gap is holding. I would consider this breakout valid as long as support near 79 holds. A move below the late August trend line would reverse this upswing and put XRT back in bear mode. Retailers will be on the hot seat Friday when the Commerce Department reports Retail Sales for August, which will include the back-to-school season.
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Chart 4
APPLE FALLS TO FIRST POTENTIAL SUPPORT ZONE... Apple (AAPL) fell sharply after its recent product announcement as investors reacted with dissapointment Despite a big gap and sharp decline, chart 5 shows that Apple may be nearing its first support zone already. Notice that the rising 50-day moving average and falling 200-day moving average reside in the 460 area. In addition, Apple broke resistance in the 460 area in early August and broken resistance turns into support. A move back to the breakout is called a throwback and this pullback sometimes offers a second chance to partake in the bigger uptrend. After all, Apple did break double bottom resistance with the July-August surge. For now, the short-term trend is down as MACD declines below its signal line. A bullish MACD signal line cross is needed to signal an upturn in prices.
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Chart 5
FRENCH AND GERMAN INDICES CHALLENGE AUGUST HIGHS... We already know that US equities are performing well in September. I wrote about strength in Japanese and Chinese equities on Monday. We are also seeing strength in European stocks as the French CAC Index ($CAC) and the German DAX Index ($DAX) challenge their August highs. Chart 6 shows the DAX surging back above 8400 with a 2% move on Tuesday. The index was up around 1/2 percent on Wednesday, but this price action is not shown because this is an end-of-day (EOD) chart. The data will be updated after the close. Nevertheless, chartists can see the triangle breakout and key support in the 8100 area. The indicator window shows the DAX relative to the S&P 500. This key European index has been outperforming since early July, which is when the price relative bottomed. Chart 7 shows the French CAC Index breaking flag resistance and nearing a 52-week high. Things can't be that bad in Europe is the French and German stock indices are near 52-week highs.
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Chart 6
