SHANGHAI COMPOSITE BREAKS A MAJOR TREND LINE -- COPPER BOUNCES WITHIN FALLING CHANNEL -- OIL BOUNCES OFF THE MIDDLE OF LONG-TERM RANGE -- OIL-RELATED ETFS UNDERPERFORMED DESPITE SURGE IN OIL -- RANKING SECTORS USING THE STOCKCHARTS TECHNICAL RANK (SCTR)
SHANGHAI COMPOSITE BREAKS A MAJOR TREND LINE... Link for today's video. The Shanghai Composite ($SSEC) is making a breakout bid with a move above the 2011 trend line and a break above flag resistance. Chart 1 shows the index hitting a new low with a move below 1900 this summer and then bouncing to the 2200 area in September. The index pulled back after this bounce as a falling flag took shape. These are typically bullish continuation patterns and the three week surge back above 2200 broke flag resistance. This breakout signals a continuation of the prior advance, which was from June to September. The 2012 and 2013 highs mark the next resistance zone in the 2400-2500 area. Even though the Shanghai Composite is coming back to life, it is still underperforming the S&P 500. The indicator window shows the price relative flattening out within a downtrend. A break above the September high is needed to show a return to outperformance. Chart 2 shows the China 25 Index ETF (FXI) breaking flag resistance and nearing its January highs.
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Chart 1
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Chart 2
COPPER BOUNCES WITHIN FALLING CHANNEL... With the S&P 500 near an all time high and the Shanghai Composite breaking out, one would expect copper and other industrial metal prices to move higher. That was not the case in 2013, but perhaps we will see a change in 2014 if the global economy picks up. Chart 3 shows weekly prices for the Copper ETN (JJC) over the last three years. JJC, and Spot Copper, broke down in February and hit new lows this summer. JJC bounced to 42 in August, but fell back with a falling channel over the last three to four months. Chartists should watch this channel for the first signs of real strength. A breakout at 40.5 would reverse the four month downtrend. The 2011 trend line and spring-summer highs mark long-term resistance in the 42 area. A breakout here is needed to reverse the entire downtrend. Chart 4 shows the Base Metals ETF (DBB) testing its summer lows with a bounce.
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Chart 3
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Chart 4
OIL BOUNCES OFF THE MIDDLE OF LONG-TERM RANGE... Oil got a big bounce last week, but this could be just an oversold bounce after an extended decline. Chart 5 shows West Texas Intermediate ($WTIC) breaking support in late September and falling below 95 in November. Oil was quite oversold because it fell around 10% in twelve weeks (Sep to Nov). After consolidating in the 94 area for a few weeks, oil surged above resistance at 96 for a breakout. At this point, I would take the breakout at face value (bullish) until there is reason to suggest otherwise. This means the breakout should hold and we can mark first support with broken resistance. Adding a little buffer, I think $WTIC needs to hold 95 to keep this breakout valid.
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Chart 5
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Chart 6
basically bounced in the middle of its three year range. The blue Fibonacci Retracements Tool shows the 50% retracement right around 95. Today's video. shows how to use the Fibonacci Retracements Tool on the SharpCharts workbench. The three year range extends from 75 to 115. The summer surge above 105 was due to tensions in the Middle East, which have since subsided. The indicator window shows the Correlation Coefficient for oil and the S&P 500. These two were positively correlated for the most part, but the correlation turned decidedly negative in November as the indicator neared -1. Note that -1 implies perfect negative correlation. This is not the way it should be and I think the negative correlation is bearish for oil.
OIL-RELATED ETFS UNDERPERFORMED DESPITE SURGE IN OIL... Even though West Texas Intermediate surged 5% last week, the energy-related ETFs remained under selling pressure and failed to partake in Friday's rebound. This is interesting because one would expect oil-related ETFs to move higher when oil surges. The inability to advance in the face of positive news is, well, negative. Furthermore, energy related ETFs are getting hit with selling pressure again on Monday. Chart 7 shows the Oil&Gas Exploration&Production ETF (XOP) falling from mid October to early November and then forming a pennant consolidation. XOP did not react at all to the surge in oil and stalled the first four days of last week. The ETF did not even partake in the broad market advance on Friday and ended up breaking pennant support with a sharp decline. Chart 8 shows the Oil&Gas Equipment&Services ETF (XES) falling sharply in the second half of November and consolidating the last two weeks. The ETF is testing support from the late June trend line with a flat flag. A move below 42.5 would break support and argue for lower prices.
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Chart 7
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Chart 8
RANKING SECTORS USING THE STOCKCHARTS TECHNICAL RANK (SCTR)... Weakness in energy stocks makes the Energy SPDR (XLE) the second weakest of the nine sector SPDRs. Chart 9 shows a screenshot from the SCTR table for ETFs. Once on the SCTR page, chartists can click the heading name (symbol) to sort by symbol. Since the sector SPDRs all start with XL in their symbol, the sector SPDRs will be grouped together. Chartists can also close columns by clicking the icons in the upper right hand corner of each heading. The blank space on the screenshot is where I removed the Russell Top 50 ETF (XLG). Notice that the Energy SPDR (XLE) and the Utilities SPDR (XLU) are the weakest of the nine sectors because they have the lowest SCTR. XLU is exceptionally weak because its SCTR is below 50. Today's video. shows details how to use these features on the SCTR page. The Industrials SPDR (XLI), Healthcare SPDR (XLV) and Consumer Discretionary SPDR (XLY) are the strongest sectors with SCTRs above 90. Chart 10 shows XLE surging above 85 in mid October and then moving into a consolidation. First support is set at 85.
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Chart 9
