TLT BREAKS OUT AS RATES FALL -- BASE METALS ETF IS STILL LAGGING -- BOLLINGER BANDS CONTRACT FOR COPPER -- COPPER MINERS ETF TURNS UP WITHIN UPTREND -- GOLD AND SILVER ETFS CHALLENGE HEIKIN-ASHI RESISTANCE -- GOLD MINERS ETF BOUNCES OFF SUMMER LOWS

TLT BREAKS OUT AS RATES FALL... Link for today's video. It is going to be a big week for Treasuries. First, the employment report is scheduled for Tuesday morning before the open. Even though quantitative easing seems a lock for the next three to six months, a strong jobs report could weigh on Treasuries. Second, the 20+ Year T-Bond ETF (TLT) broke flag resistance last week to signal a continuation of the September advance. This week could make or break the reversal. Chart 1 shows TLT forming a double bottom from August to September and then a flag from late September to mid October. The surge above 106.5 broke flag resistance and the upside target is in the 109-110 area. Flags are said to fly at half-mast. This means chartists can add the September advance to the flag low for an upside target. The flag low and a small buffer can be used to mark key support at 104. The indicator window shows Aroon Up crossing above Aroon Down way back in mid September. This indicator has since hit +100 twice in the last four weeks. Chart 2 shows the 10-year Treasury Yield ($TNX) breaking flag support last week.

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Chart 1

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Chart 2

BASE METALS ETF IS STILL LAGGING... Even though the Materials SPDR surged last week, the Base Metals Fund (DBB) fell last week and the Copper ETF (JJC) barely gained. Chart 3 shows DBB with an ever-so-slight rise the last five weeks. A rising wedge formed and the ETF has had trouble staying above 16.75 since mid September. DBB, however, has yet to actually break down and the October lows mark key support. A move below these lows would end the rising wedge and signal a continuation of the prior decline. The indicator window shows MACD with a slight rise as it holds above its signal line. A move below the signal line and into negative territory would turn momentum bearish. Note that the Base Metals Fund (DBB) consists of three metals with relatively equal weightings: Aluminum (32.24%), Copper (33.65%) and Zinc (34.11%).

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Chart 3

BOLLINGER BANDS CONTRACT FOR COPPER... Chartists may want to watch Spot Copper ($COPPER) for clues on base metals. Chart 4 shows copper within a consolidation as prices oscillate around the 3.30 area the last two months. The pink lines show Bollinger Bands with the 20-day SMA in the middle and the Bandwidth indicator in the lower window. Bandwidth is currently at its lowest level in over seven months, which means volatility is contracting. The volatility contraction is like a coil or spring that is being wound tight. A volatility expansion or significant move is the next thing to expect, but Bollinger Bands do not provide directional clues. Chartists need to use other tools to establish a directional bias or wait for the break. A move above 3.35 would exceed the upper Bollinger Band and break triangle resistance. This would clearly be bullish and argue for further strength towards the 3.55-3.60 area. A move below 3.20 would break support and argue for a test of the summer lows. Chart 5 shows the Copper ETF (JJC) for reference.

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Chart 4

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Chart 5

COPPER MINERS ETF TURNS UP WITHIN UPTREND... Chart 6 shows the Copper Miners ETF (COPX) holding above its late August low and turning up over the last eight days. Notice that COPX has a string of higher highs and higher lows since early July. A continuation of this uptrend would project a move above the September high. Chartists can mark support at the early October low. A break below this level would reverse the four month uptrend. The indicator window shows the MSCI Emerging Markets iShares (EEM) in an uptrend since late June. I am showing EEM because these two have been positively correlated over the last seven months. Notice how both fell from early May to late June, and then rose from late July to October. This positive correlation may have something to do with the expectations for quantitative easing. Emerging markets have rebounded as the market priced in extended QE over the last few months.

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Chart 6

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Chart 7

Chart 7 shows Freeport McMoran Copper & Gold (FCX) forming a double bottom from April to August and breaking resistance with the September surge. Even though this company has strayed into the oil & gas arena with its acquisition of Plains Exploration, FCX is still one of the biggest mining concerns in the market and accounts for around 6% of COPX. Turning back to the chart, notice how broken resistance turned into support in the 32 area and held on the throwback. FCX broke a short-term resistance level last week and hit an 11 month high. Even though the trend since late June is clearly up, FCX is short-term overbought after a 7.5% surge the last eight days. Broken resistance marks first support in the 33.7 area and the October low marks key support in the 32 area.

GOLD AND SILVER ETFS CHALLENGE HEIKIN-ASHI RESISTANCE... The next two charts use Heikin-Ashi candlesticks to filter some of the daily noise. In short, Heikin-Ashi candlesticks use open-close data from the prior period and the open-high-low-close data from the current period to create a combo candlestick. It is like two days compressed into one. ChartSchool article. Chart 8 shows the Gold SDPR (GLD) within a falling wedge since late October. With last week's surge above 125, it is possible that GLD is forming a higher low. However, we have yet to see follow through and a break above resistance from the early October high. A move above this high would end the wedge and signal a continuation of the July-August advance. The May highs mark next resistance, which would become the target zone after a breakout. Chart 9 shows the Silver iShares (SLV) with similar characteristics.

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Chart 8

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Chart 9

GOLD MINERS ETF BOUNCES OFF SUMMER LOWS... The Gold Miners ETF (GDX) is getting a bounce, but this is still within an overall downtrend. Chart 10 shows weekly bars over the last three years. GDX hit new lows this summer, bounced above 30 and then returned to the low 20s in October. The ETF did manage a bounce last week and we could be seeing the early stage of a double bottom. Keep in mind that potential double-bottoms form every time prices bounce off a prior low. Moreover, double bottoms are not confirmed until there is a break above the intermittent high. As shown in late 2012, even confirmed double bottoms are not immune to failure. GDX would have to break its August high to confirm this double bottom. The indicator window shows GDX relative to GLD using the price relative (GDX:GLD ratio). GDX has been underperforming bullion for three years and the price relative hit a new low at the beginning of October.

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Chart 10

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Chart 11

Chart 11 shows daily candlesticks over the last seven months. GDX bounced off support with a gap above 25 and this gap is holding. That is about the only positive I can find on this chart. A move below 23.50 would fill the gap and negate this positive. The indicator windows show the AD Line and AD Volume Line hitting new lows in mid October. There are no signs of strength in these key breadth indicators. Despite weakness overall, I would probably take my cues from gold and silver. Breakouts in both would be bullish for GDX and it could then play a little catch up.