TELECOM ISHARES CORRECTS WITH FALLING CHANNEL -- AT&T AND VERIZON BOUNCE OFF FIBONACCI LEVELS -- HONDA AND TOYOTA WEIGH ON GLOBAL AUTO ETF -- FORD TESTS SUPPORT AS UPSIDE VOLUME INCREASES -- SCTR SURGES FOR MARKETVECTORS RUSSIA ETF
TELECOM ETF CORRECTS WITH FALLING CHANNEL... Link for today's video. The Telecom iShares (IYZ) has underperformed the broader market over the last five weeks, but the ETF hit a support zone and firmed the last few days. Chart 1 shows IYZ in a long-term uptrend as the ETF hit a new high in late October. A decline within an uptrend is considered corrective as long as it holds above the prior low. Ideally, corrections would retrace 38-62% of the prior advance and the uptrend would then resume. IYZ has currently retraced 50-62% of the prior advance with the move to the 27.5-28 zone. Also notice that the September-October consolidation marks support here. With a falling channel taking shape the last few weeks, chartists can mark resistance at 28.5 and watch this level for a breakout.
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Chart 1
The indicator window shows the MACD Histogram, which measures the difference between MACD and its signal line (9-day EMA of MACD). A move into positive territory indicates that MACD moved above its signal line, but chartists probably do not want to act on every histogram signal. I would suggest looking for crossovers after a meaningful pullback in the MACD Histogram. In this case, a pullback below -.10 looks meaningful and a subsequent cross into positive territory signals a return to bullish momentum. Notice that the MACD Histogram dipped below -.10 in mid November, but has yet to complete the signal with a cross back into positive territory.
AT&T AND VERIZON BOUNCE OFF FIBONACCI LEVELS... The Telecom iShares is relatively flat today because gains in Verizon (VZ), AT&T (T) and CenturyLink (CTL) were countered with a big loss in Crown Castle (CCI). Verizon and AT&T are still the too biggest components for this ETF and both remain in corrective mode, just like IYZ. Chart 2 shows VZ surging with good volume in October and then falling rather sharply in December. The decline retraced 62% and returned prices to their breakout. VZ is finding some support here with today's bounce, but a breakout is needed to signal the end of the correction. This would require a move above last week's high.
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Chart 2
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Chart 3
Chart 3 shows T with a similar surge in October and a falling wedge the last seven weeks. Broken resistance and the early September trend line mark support in the 34 area and the stock is trying to hold this level. Even though the falling wedge could be just a correction, the immediate trend is down as long as the wedge falls. Look for a break above last week's high to reverse this downtrend.
HONDA AND TOYOTA WEIGH ON GLOBAL AUTO ETF... The Global Auto Index Fund (CARZ) has a head-and-shoulders reversal pattern working, but the overall trend remains up and this pattern has yet to be confirmed. Chart 4 shows CARZ trending higher from April to October and hitting a new high in mid October. At this point, the head-and-shoulders pattern is just a consolidation within this uptrend. It would take a move below neckline support to confirm the pattern and confirm the reversal. As long as this bearish pattern is unconfirmed, I would keep an eye out for a surge off support that would signal a successful test. The indicator window shows the price relative (CARZ:$SPX ratio) falling in October and then flattening the last five weeks. A break above the November highs is needed to signal a return to relative strength.
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Chart 4
Last week John Murphy showed GM hitting a new high and the DJ US Auto Index ($DJUSAU) challenging a triangle trend line. So why is CARZ not keeping pace? In contrast to $DJUSAU, CARZ did not move higher in December because it was weighed down by Honda (HMC) and Toyota (TM), which are down around 5% this month. Throw in a few other Japanese automotive stocks and CARZ has a 33% exposure to Japan. This makes CARZ a good bet on the Japanese auto industry, not the US auto industry, which accounts for around 20% of the ETF. Chartists, therefore, need to focus on HMC and TM for clues on the future of CARZ. Chart 5 shows Toyota hitting resistance near 133 in mid November and falling below 120 last week. Chart 6 shows Honda hitting a new high in late November and then falling back to a support zone last week.
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Chart 5
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Chart 6
FORD BOUNCES OFF SUPPORT ON GOOD VOLUME... Ford has been lagging the market for the last three months, but signs of buying interest are appearing as the stock tests support in the 16 area. First note that the long-term trend is up because the stock hit a new high in late October. Even with this new high, the stock has been pretty much range bound since late July. The lows mark range support in the 16 area, while the highs mark range resistance in the 17.5-18 area. Shorter term. notice that Ford fell sharply on high volume at the beginning of December. The stock managed to firm after this decline, got a small bounce on good volume Friday and a good bounce today. This is potentially positive, but we need some sort of breakout to suggest a sustainable increase in buying pressure. I would suggest that a break above 17 on good volume would indicate that support is going to hold and the stock is going to challenge resistance.
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Chart 7
SCTR SURGES FOR MARKETVECTORS RUSSIA ETF... The MarketVectors Russia ETF (RSX) came across my radar as the StockCharts Technical Rank (SCTR) surged from the upper 30s to the low 60s over the last two weeks. I found this ETF when looking at the SCTR table for ETFs and sorting by change. RSX was one of the big gainers on Monday and I pulled up the chart for further inspection. Chart 8 shows RSX with the SCTR in the indicator window. Notice that the SCTR broke above 50 in early December and held above 50. On the price chart, RSX formed a falling wedge as it corrected back to broken resistance in the 27.5 area. This correction also retraced 62% of the prior advance. The ETF is challenging wedge resistance with a surge back above 28 today. A breakout would be bullish and argue for a challenge to the October high.
