XLF CHALLENGES FLAG RESISTANCE -- REGIONAL BANK SPDR SURGES TO NEW HIGH -- BANK OF AMERICA, CITIGROUP AND JP MORGAN LEAD XLF -- SOCIAL MEDIA ETF HITS SUPPORT ZONE -- LINKEDIN FORMS ABC CORRECTION -- FACEBOOK FIRMS ABOVE SUPPORT
XLF CHALLENGES FLAG RESISTANCE ... Link for today's video. The Finance SPDR (XLF) remains on my radar because this key sector has been underperforming the broader market. That may be changing. Just to review, chart 1 shows the ETF surging above resistance in mid October, but failing to hold this breakout and moving lower the last three weeks. Similarly, the price relative (XLF:SPY ratio) fell to a new low in early November as XLF showed relative weakness. Now let's focus on the far right side of the chart. XLF fell below 20.5 on Thursday, but rebounded with a huge move in early trading on Friday. This means the falling flag remains in play and this is a bullish continuation pattern. Short-term, I will be watching flag resistance at 20.8 for a follow through breakout to confirm. Such a move would signal a continuation of the October surge and project a move to new highs.
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Chart 1
REGIONAL BANK SPDR SURGES TO NEW HIGH... Chart 2 shows the Regional Bank SPDR (KRE) with a monster move to new highs. The ETF started its move on October 11th and this move was duly noted in that day's Market Message. The ETF went on to record a new high in late October. After a consolidation the last two weeks, KRE broke pennant resistance with today's surge. The indicator window shows the price relative bottoming in mid September and working its way higher the last seven weeks. It is not mind-blowing relative strength, but KRE is definitely stronger than XLF. Note that KRE is a very broad-based ETF with some 80 stocks. The largest component (PacWest Bancorp) accounts for just 1.72%. This means the weightings are spread out and KRE provide an excellent barometer for the regional banking industry.
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Chart 2
BANK OF AMERICA, CITIGROUP AND JP MORGAN LEAD XLF ... The too big too fail banks are leading the finance sector higher with big moves. Chart 3 shows Bank of America (BAC) hitting its support zone and surging over 3% in early trading on Friday. Notice how the stock surged from 12.25 to 15 this summer and then embarked on a long correction. Broken resistance turned support and this area may just hold. The gray Raff Regression Channel defines this correction with resistance at 14.75. The smaller Raff Regression Channel defined the three week decline and BAC broke resistance with today's surge. I would consider this breakout valid as long as the stock holds above 14.
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Chart 3
Chart 4 shows Citigroup (C) within a large falling channel the last four months. Despite this overall downtrend and relative weakness, the stock held just above support and surged over 3% today. This move broke the falling Raff Regression Channel and solidified support.
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Chart 4
Chart 5 shows JP Morgan (JPM) with a series of higher lows in October and now November. The stock formed a falling wedge or flag the last three weeks and broke out with a surge today. Also notice that a big piercing pattern formed on November 1st. The indicator window shows MACD on the verge of turning up.
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Chart 5
SOCIAL MEDIA ETF HITS SUPPORT ZONE... As it's name suggests, the Global X Social Media ETF (SOCL) its an exchange traded fund that specializes in social media companies around the world. The ETF has been trading since November 2011 and volume was relatively low until September 2013. I am not exactly sure what happened, but trading volume surged in September and the 50-day moving average for volume is around 242,000 shares. Even if this is still too thin for your trading style, the ETF still offers a good way to measure social media stocks as a whole. Three of the top five holdings are from the US and the other two are from China. The first four account for around 10% each and Google weighs in at 5.7%.
Chart 6 shows SOCL advancing from 14 to 20 and then embarking on a large consolidation. Broken resistance in the 18.5 area turned into support in early October and again in early November. This is the first level to watch for a long-term trend reversal. Short-term, the ETF forged an exhaustion gap in mid October, declined and then formed a rising flag in early November. The ETF broke flag support this week and is now testing long-term support. I would mark first resistance at 20. Look for a break above this level to signal a successful support test and resume the long-term uptrend.
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Chart 6
LINKEDIN FORMS ABC CORRECTION... While the Social Media ETF (SOCL) tests the October low, LinkedIn broke below its October low and Facebook is trying to firm just above this low. SOCL is caught in the middle. Chart 7 shows LinkedIn (LNKD) going from market leader to market laggard over the last few weeks as the stock hit resistance in the 250 area and fell sharply. LNKD consolidated with a rising flag and then broke flag support with a sharp decline on Thursday. The flag highs now mark resistance at 230 for the first level to beat. Elliott Wave theorist should note that the decline looks like an ABC correction after a big impulse wave. The indicator window shows the price relative (LNKD:$SPX ratio) peaking in early September and moving lower as the stock underperforms the lowly S&P 500.
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Chart 7
FACEBOOK FIRMS ABOVE SUPPORT... Chart 8 shows Facebook (FB) falling towards support in late October and trying to firm the last seven days. The two long white candlesticks mark bullish engulfing patterns, but FB did not follow through for confirmation. Instead, a pennant formed and a break below 47 would signal a continuation of the October decline. Despite a support zone in the 45-47 area, I would like to see an upside breakout at 50.5 to signal some buying pressure. The indicator window shows the price relative edging lower the last three weeks. An upturn and breakout is needed here to signal a return to relative strength.
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Chart 8
GOLD AND SILVER ETFS FAIL TO HOLD BREAKOUTS... The Gold SDPR (GLD) and Silver iShares (SLV) broke out in late October, but follow through was negligible and these breakouts failed to hold in November. Chart 9 shows GLD using the Heikin-Ashi candlesticks, which combine two days worth of data to create one candlestick. GLD broke wedge resistance with a move above 130, but fell back below 127 to negate the breakout. A strong breakout should hold and prices should continue higher. Chartists need to re-evaluate when a breakout does not act as it is supposed to act. Chart 10 shows SLV with a wedge/flag break over the last few days. The big trend is down and this breakdown targets a move towards the summer lows (~18).
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Chart 9
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Chart 10
EURO REVERSES AT KEY RETRACEMENT... Gold, silver and other commodities are under pressure from a rising Dollar, which is caused by a weakening Euro. The European Central Bank (ECB) turned dovish with a surprise cut in its key rate on Thursday. Some of this news was already baked into the cake because the Euro fell sharply last week. Chart 11 shows weekly bars for the Euro Index ($XEU) over the last three years. Notice that the index hit resistance at the 62% retracement and fell sharply the last two weeks. Even though the wedge is still rising, this weekly move could signal the start of an extended decline because this wedge looks like a correction of the prior decline (April 2011 to July 2012). A move below 130 would break wedge support and further support this argument. A breakdown in the Euro would be positive for the Dollar Bullish ETF (UUP) because the Euro accounts for around 57% of this ETF. Chart 12 shows UUP breaking support at 21.8 in mid September, rebounding in late October and trying to recoup this support break. A failed support break is sometimes as bullish as a resistance breakout.
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Chart 11
