SPY GAPS AND BREAKS FLAG RESISTANCE -- FINANCE AND REGIONAL BANK SPDRS BREAK OUT -- JP MORGAN AND WELLS FARGO REMAIN RELATIVELY WEAK -- NATURAL GAS ETF SHOWS RELATIVE STRENGTH WITH HIGH SCTR -- SPOT NATURAL GAS SURGES OFF SUPPORT
SPY GAPS AND BREAKS FLAG RESISTANCE... Link for today's video. Signs of hope in Washington spurred buyers on Thursday as the S&P 500 ETF (SPY) gapped up and broke flag resistance with a big move. Technically, the gap and breakout are short-term bullish until proven otherwise. At this point, chartists must decide what it would take to negate this breakout. Chart 1 shows SPY with an open above 167 and trend line break near 168. A strong breakout should hold and I would mark first support at 167. A close below this level would start to fill the gap and question the validity the breakout. Keep in mind that this is the short-term picture and Washington-driven volatility is still possible. First, we do not have an actual deal. Second, we will not know the details of the deal until it is signed, sealed and delivered. In short: the situation remains fluid. I am concerned that we could see a failed breakout similar to the one in early June. The indicator window shows +DI crossing above DI for the first time since late September.
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Chart 1
FINANCE AND REGIONAL BANK SPDRS BREAK OUT ... The Finance SPDR (XLF) led the market higher on Thursday with a gap and breakout of its own. Chart 2 shows XLF forming a harami on Tuesday-Wednesday and breaking resistance at 20 on Thursday. This breakout is holding on Friday as the ETF stalls above 20. As with SPY, it is important that the breakout holds and I would mark first support at 19.75. A close below this level would start filling the gap and negate the breakout. Keep in mind that XLF is still underperforming the market over a three month timeframe. The price relative peaked in late July and has yet to break above its September high, even though it turned up on Thursday. Medium-term relative weakness could trump short-term strength. Chart 3 shows the Regional Bank SPDR (KRE) perking up with a gap on Thursday and follow through breakout on Friday. The price relative is also making a challenge to the September highs.
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Chart 2
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Chart 3
JP MORGAN AND WELLS FARGO REMAIN RELATIVELY WEAK... JP Morgan (JPM) and Wells Fargo (WFC) kicked off earnings season for the finance sector with reports today. Both stocks surged yesterday, but are down in early trading on Friday. Chart 4 shows JPM trading within a consolidation since late August. The stock surged to the upper boundary early Friday and then fell back. Overall, it looks like a head-and-shoulders top is taking shape with neckline support near 50. A move below the August-September lows would break support and confirm this bearish reversal pattern. The indicator window shows the SCTR moving below 50 in early August and remaining below 50 as JPM underperforms its peers in the S&P 500.
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Chart 4
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Chart 5
Chart 5 shows WFC breaking support in the 41 area this week. The stock surged above 41 on Thursday, but gave up these gains with weakness on Friday. This chart looks bearish as long as resistance at 42 holds. The indicator window shows the SCTR moving below 50 in late September. The StockCharts Technical Rank (SCTR) is an easy way to separate the relatively strong from the relatively weak. StockCharts computes these rankings for the S&P 500, S&P MidCap 400, S&P SmallCap 600, US ETFs and TSE stocks (Toronto Stock Exchange). These rankings place the components into deciles, which means components with scores above 90 are in the top ten percent and show exceptional relative strength. Scores below 10 represent the bottom ten percent and show exceptional relative weakness. You can read more about the SCTR in our ChartSchool article
NATURAL GAS ETF SHOWS RELATIVE STRENGTH WITH HIGH SCTR... Chart 6 shows the Natural Gas ETF (FCG) with the SCTR in the indicator window. Notice how it crossed above 50 in early July and never looked back. The indicator crossed above 90 in late September and this makes it one of the best performing ETFs right now. On the price chart, FCG broke a large resistance zone with a move above 17.75 in early September and moved to new highs. The trend since June is clearly up with the 18.50 area marking first support. The chart also shows the top ten components for this ETF.
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Chart 6
SPOT NATURAL GAS SURGES OFF SUPPORT... Natural gas prices are perking up after a trend line break in late August and successful support test in early October. First, let's look at the long-term chart. Chart 7 shows weekly bars for Natural Gas ($NATGAS) over the last three years. After a decline below 2 in April 2012, prices reversed and broke out in the second half of the year. The uptrend slowed in 2013 as Natural Gas bounced between 3 and 4.50, but prices never broke a prior low to reverse the uptrend. The indicator window shows the US Natural Gas Fund (UNG) for reference. Even though this ETF is supposed to track Natural Gas prices, you can see that it is not a very good proxy. This is true with most ETFs that are based on futures contracts instead of the physical commodity. For example, the Gold SDPR (GLD) is based on the physical commodity and it tracks Spot Gold quite well.
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Chart 7
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Chart 8
Chart 8 shows a six month view for more detail. Prices broke trend line resistance in August and this breakout held with successful tests in September and October. In fact, the surge on Monday-Tuesday was quite impressive as Natural Gas advanced over 5%. This move further reinforces support in the 3.5 area and argues for a continuation higher.
SHANGHAI COMPOSITE BREAKS LONG-TERM MOVING AVERAGE... The Shanghai Composite ($SSEC) got a good bounce this week and broke back above the 200-day moving average. Chart 9 shows SSEC breaking this key moving average in mid September and then pulling back with a falling flag. The flag ended with a bounce the last six days and this breakout signals a continuation of the medium-term uptrend, which began with the late June low. This breakout produced a reaction low that chartists can now use to mark key support in the 2150 area. The indicator window shows the index starting to outperform the S&P 500 with the price relative rising since early August.
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Chart 9
NIKKEI 225 TURNS UP AS YEN TURNS DOWN... Chart 10 shows the Nikkei 225 ($NIKK) pulling back below 14000, finding support above the August low and breaking flag resistance. I expected support in the 14000 area, but the index overshot this level as the Yen continued to rise in early October. A pullback in the Yen Index ($XJY) over the last few days facilitated a bounce in the Nikkei, which is full of exporters that are dependent on a weaker Yen. With this flag breakout, chartists can use the flag lows and triangle trend line to mark key support in the 13500 area.
