FINANCE SECTOR AND REGIONAL BANKS WEIGH ON MARKET -- JP MORGAN AND BANK OF AMERICA BREAK SHORT-TERM SUPPORT -- GOLD AND GOLD MINERS FALL BACK AFTER FED SURGE -- INTERNET AND NETWORKING STOCKS WEIGH ON TECH SECTOR -- COPPER HOLDS BREAKOUT
FINANCE SECTOR AND REGIONAL BANKS WEIGH ON MARKET... Link for today's video. I wrote about relative weakness in the Finance SPDR (XLF) last week and this key sector is weighing on the market today. Banks could be under pressure because of a high level of uncertainty at the Fed. First, the President has yet to appoint a new Fed chair and it is unclear who is steering the Fed right now. Second, the FOMC voted against tapering in September, but we are already hearing about the possibility of an October taper. Whatever the reason, chart 1 shows the Finance SPDR failing to take out its summer high and moving sharply lower the last three days. XLF is in the process of filling last week's gap and giving back its gains. The indicator window shows the price relative breaking below the mid September low as XLF underperforms. Chart 2 shows the Regional Bank SPDR (KRE) breaking flag support with a sharp decline the last four days.
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Chart 1
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Chart 2
JP MORGAN AND BANK OF AMERICA BREAK SHORT-TERM SUPPORT... Big banks are under pressure on Monday with JP Morgan and Bank of America leading the way lower. Note that Bank of America (BAC), Alcoa (AA) and Hewlett Packard (HP) got the boot. Visa (V), Goldman Sachs (GS) and Nike (NKE) will replace these three. Chart 3 shows BAC forming a lower high in September and breaking short-term support with a sharp decline the last few days. The indicator window shows the StockCharts Technical Rank (SCTR) falling to the low 50s.
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Chart 3
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Chart 4
Chart 4 shows JP Morgan (JPM) with a potential head-and-shoulders pattern taking shape the last few months. The stock broke short-term support with a decline below 52 today and the neckline marks next support in the 50 area. Relative weakness and the Accumulation Distribution Line favor a neckline break. First, notice that JPM has shown relative weakness since early August because this is when the StockCharts Technical Rank (SCTR) broke below 50. Second, notice that the Accumulation Distribution Line broke its summer lows to signal distribution.
GOLD AND GOLD MINERS FALL BACK AFTER FED SURGE... Gold and gold stocks also surged on Wednesday, but gave most of it back with a decline the last few days. Chart 5 shows the Gold Miners ETF (GDX) surging around 9% on Wednesday and then giving it back with a plunge below Tuesday's close. Such an immediate give back is a sign of weakness. At the very least, Wednesday's high now marks the first resistance level to watch for signs of a trend reversal. The May-August highs mark long-term resistance.
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Chart 5
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Chart 6
The fate of Gold Miners ETF is, of course, tied to gold and the Gold SDPR (GLD). Chart 6 shows GLD with a surge above 132 on Wednesday and a decline below 128 the last three days. It was a one-day Fed-infused buying binge based on a 10-15 billion Dollar difference in monthly quantitative easing. Let's see what happens now that the dust has settled. I will remain bearish as long as resistance at 133 holds. A subsequent break above 133 would show strong buying pressure and argue for higher prices, perhaps to the 150 area. Chartists can also watch MACD for a signal line cross to signal an upturn in momentum.
INTERNET AND NETWORKING STOCKS WEIGH ON TECH SECTOR... I featured the FirstTrust Internet ETF (FDN) and Networking iShares (IGN) on Friday because FDN was the one of the strongest industry group ETFs and IGN recently broke resistance. These two remain in long-term uptrends, but both were hit with selling pressure today and gave back some of their gains. Even with these pullbacks, IGN is still up 5% month-to-date and FDN is up almost 7%. Chart 7 shows FDN breaking wedge resistance en route to a 10% gain from late August to mid September (49 to 54). The mid September low marks first support in the 52 area, while broken resistance marks second support in the 51 area. The indicator window shows the StockCharts Technical Rank (SCTR) above 98, which puts it in the top 2% for relative strength. Notice that the SCTR has been above 80 since early May. Chart 8 shows the Networking iShares backing off the upper trend line of the rising channel.
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Chart 7
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Chart 8
COPPER HOLDS BREAKOUT... Spot Copper ($COPPER) surged on Wednesday, extended its gains on Thursday and edged lower on Friday-Monday. Copper held up much better than gold and the wedge breakout is also holding. Chart 9 shows Spot Copper breaking out at 3.30 and holding this breakout on Friday. Note that copper is down around 3 cents on Monday. Broken resistance turns support in the 3.28-3.30 area and this is the first support zone to watch for signs of a failed breakout. The indicator window shows MACD turning up with a move above its signal line and break into positive territory. Momentum is bullish as long as MACD remains above its signal line. Chart 10 shows the Copper ETF (JJC) with similar characteristics. Chart 11 shows the Copper Miners ETF (COPX) holding its flag breakout with broken resistance marking first support in the 9.50 area.
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Chart 9
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Chart 10
