DEFINING THE CHANNELS FOR IWM AND QQQ -- NATGAS HOLDS BREAKOUT AND SURGES TO RESISTANCE -- NATURAL GAS INDEX ETF BREAKS FLAG RESISTANCE -- CATERPILLAR AND DEERE SURGE TO RESISTANCE -- COAL ETF AND METALS-MINING SPDR TESTS SUPPORT

DEFINING THE CHANNELS FOR IWM AND QQQ... Link for today's video. Chartists can define a trend using channel trend lines and the Raff Regression Channel. I typically use channel trend lines when the peaks and troughs align to form parallel lines. Sometimes the peaks and troughs do not align and I then use the Raff Regression Channel to define the trend. Analysis is pretty simple, the trend is up as long as prices hold within a rising channel. Chartists can then use the lower trend line to mark support and use pullbacks for opportunities to partake in the given trend.

Chart 1 shows the Russell 2000 ETF (IWM) within a rising channel over the last 12 months. The ETF touched the lower trend line three times and the upper trend line four times. I elected to draw through the July-August highs to make these trend lines parallel. This channel defines the long-term uptrend with first support marked in the 107.50 area. The lower trend line extends to this area in late December and broken resistance turned into support at this level in November.

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Chart 1

The indicator window shows the 150-period Commodity Channel Index (CCI) holding in positive territory since November 2012. This is a bit of "curve fitting" because I sought the number setting that would best capture this uptrend. In fact, notice how CCI did not even break below +50 this year. Long-term momentum (CCI) is bullish as long as it holds positive. A break into negative territory would turn momentum bearish.

Chart 2 shows the Nasdaq 100 ETF (QQQ) with a three Raff Regression Channels, which is explained below. The blue channel defines the big uptrends, while the green channels mark smaller uptrends within this bigger uptrend. The most recent Raff Regression Channel (green) extends around five months and ends in the 80 area. Combined with the early November low, I would mark a support zone in the 80-81 area. The indicator window shows 150-period CCI holding in positive territory the entire year. Look for a move below zero to turn momentum bearish.

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Chart 2

The Raff Regression Channel starts with a linear regression line that extends from the low of the move to the high. The upper and lower lines are then set equidistant from the furthest high or low. Notice that the June low is the furthest point from the linear regression line. The upper line is then set the same distance above the linear regression. Chartists can then use this channel to define an uptrend or a downtrend.

NATGAS HOLDS BREAKOUT AND SURGES TO RESISTANCE... Below average temperatures are giving a boost to natural gas and this is putting a bid into natural gas stocks. Chart 3 shows Spot Natural Gas ($NATGAS) within an uptrend over the last 18 months. $NATGAS broke channel resistance with a surge above 3.5 in August and then consolidated the last few months. Despite a break below 3.5 in early November, the commodity ultimately held support and surged to resistance. The September-November lows mark key support now. The indicator window shows the Natural Gas ETF ($UNG) stalling below 20 the last few months. UNG typically lags the underlying because the ETF consists of several futures contracts, which must be managed and rolled over on a regular basis. It is perhaps a good short-term trading vehicle, but not a long-term way to invest in natural gas Chart 4 shows daily bars for more detail.

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Chart 3

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Chart 4

NATURAL GAS INDEX ETF BREAKS FLAG RESISTANCE... Chart 5 shows the Natural Gas Index ETF (FCG) holding support in the 18.5-19 area and breaking flag resistance with a surge the last four days. First, notice that the long-term trend is up on this chart. The ETF broke resistance in September and recorded a 52-week high. After another high in mid October, FCG pulled back to support with a falling flag. Bullish flags fall and mark a short-term correction or consolidation. The subsequent flag breakout ended this pullback to signal a continuation of the long-term uptrend. Chartists can now mark key support at 18.5. The indicator window shows the StockCharts Technical Rank (SCTR) hitting 60 in early November and turning back up.

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Chart 5

CATERPILLAR AND DEERE SURGE TO RESISTANCE ... Caterpillar (CAT) got an upgrade from Goldman Sachs on Monday morning and surged to resistance at 85. Chart 6 shows the stock breaking support with a sharp decline last week, but movie back above this support break today. A failed support break is a bear trap. Basically, this is a negated bearish signal, which is sometimes as strong as a bullish signal. CAT, however, still has some work to do because the stock stopped short of a resistance break. Resistance at 85 held the last five weeks and a follow through advance is needed to produce a breakout. While the Goldman upgrade and $100 price target are bullish, the technicals have yet to turn fully bullish. Chart 7 shows Deere (DE) surging to resistance with expanding volume last week. Chart 8 shows Joy Global (JOYG) with a falling flag and support test in the 54 area. A move above 57 would end the flag and signal a continuation of the prior surge.

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Chart 6

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Chart 7

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Chart 8

COAL ETF AND METALS-MINING SPDR TESTS SUPPORT... Caterpillar and Joy Global are quite tied to the global mining industry (and China). Deere also makes heavy equipment, but has more ties to agriculture. Chartists interested in JOYG and CAT should also keep an eye on China and mining stocks. Chart 9 shows the Metals and Mining SPDR (XME) breaking pennant support last week and stalling with three doji. These candles, which look like a plus sign or cross, form when the open and close are nearly equal. Overall, the medium-term trend is up on this chart and the short-term trend is down. A short-term downtrend in a medium-term uptrend could be a mere correction so chartists should be on guard for sign that the correction is ending. A surge after the dojo and break above the November trend line would provide such a signal.

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Chart 9

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Chart 10

Chart 10 shows the Coal ETF (KOL) falling from resistance and testing support at 19.75 the last few days. The gray lines show the Bollinger Bands contracting over the last two weeks. In fact, bandwidth was the narrowest in over six months. This Bollinger Band contraction does not give us a directional clue, but it does suggest that a volatility expansion or price move is due. A break below 19.75 would be bearish and a break above 20.5 would be bullish.