RUSSELL 2000 ETF BREAKS IMPORTANT TREND LINE -- QQQ TESTS SUPPORT AS CCI BECOMES OVERSOLD -- COPPER FAILS AT RESISTANCE -- BASE METALS ETF TRACES OUT BEARISH CONTINUATION PATTERN -- COPPER MINERS ETF TURNS SHARPLY LOWER -- SILVER GETS THE SQUEEZE PLAY
RUSSELL 2000 ETF BREAKS IMPORTANT TREND LINE... Link for today's video. The Russell 2000 ETF (IWM) continued lower in early trading on Monday and broke the trend line extending up from early September. With a decline below 113, chart 1 shows the ETF moving to its lowest level of the year (2014). Even though a pullback after a strong December is normal, it looks like this pullback is overstaying its welcome and could evolve into a more extended correction. First, notice how IWM broke flag resistance and failed to hold this breakout with Friday's sharp decline. Second, IWM broke support from the flag lows and September trend line with today's decline. While I am not ready to turn long-term bearish, the breakout failure and support break suggest that we are in the midst of a correction that could last a few weeks. The indicator window confirms as Aroon Down surged above Aroon Up and reached 100. This is a bearish signal from the Aroon indicators that would only be countered if Aroon Up surges back above Aroon Down and hits 100.
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Chart 1
QQQ TESTS SUPPORT AS CCI BECOMES OVERSOLD... Chart 2 shows the Nasdaq 100 ETF (QQQ) in the midst of its seventh decline of 2% or more (high to low). Over the last six months, the prior declines lasted just a few days as QQQ resumed its advance soon thereafter. In fact, most of these pullbacks were just one to two days as the bulls quickly regrouped. The current decline is entering its third day and is the deepest since October. Notice how the October decline ended with a gap and a three white soldiers candlestick pattern. QQQ is currently testing support and is short-term oversold as 10-period CCI moves below -100. With the bigger trend up, this is a bullish setup for short-term mean reversion traders. While I am still looking for a correction to extend a few weeks, this does not preclude a short-term oversold bounce within that correction. Apple (AAPL) remains the big unknown because the company reports earnings after the close. Chart 3 shows AAPL establishing support at 540 over the past week and a half.
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Chart 2
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Chart 3
COPPER FAILS AT RESISTANCE ... With emerging market stocks, currencies and bonds moving sharply lower, the outlook for industrial metals, such as copper, has certainly diminished. Chart 4 shows Spot Copper ($COPPER) hitting resistance in the 3.40 area for the third time in nine months and moving lower the last four weeks. Also notice that broken support turned into resistance and ultimately held in this area. Long-term resistance is clearly marked and a move above 3.5 is needed for a convincing breakout. The indicator windows shows the Percent Price Oscillator (PPO) stalling out near the zero line for the fourth time in two years. A move into negative territory would turn momentum bearish again. Chart 5 shows daily bars for the Copper ETF (JJC) and highlights the recent failure at resistance. It is possible that a falling flag or wedge will form this month, but the short-term trend is down and a break above 41.1 is needed to such a pattern seriously.
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Chart 4
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Chart 5
BASE METALS ETF TRACES OUT BEARISH CONTINUATION PATTERN... Chart 6 shows the Base Metals ETF (DBB) in a long-term downtrend with a descending triangle taking shape the last seven months. This is a bearish continuation pattern and a break below support would signal a continuation lower. Chart 7 shows daily bars for more detail. Notice that I am drawing the descending triangle lines with a "magic marker". Chartists can draw fat trend lines by using the "box tool" when annotating. Once a long box is drawn, press/hold the Windows Key and drag the box to rotate it. The ETF established resistance at 17 from October to January and chartists can look for a break above this level to put the bulls back on track. The indicator window shows the StockCharts Technical Rank (SCTR) below 50 since February 2013. A break above 50 is needed to put DBB into the stronger half of our ETF universe. Note that DBB consists of copper, zinc and aluminum in relatively equal parts.
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Chart 6
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Chart 7
COPPER MINERS ETF TURNS SHARPLY LOWER... Chart 8 shows the Copper Miners ETF (COPX) establishing an important resistance level this month and forming a bearish triangle. Why is this particular triangle considered bearish? Because the bigger trend is down and this pattern represents a consolidation, which is just a rest within the existing trend. A break below triangle support would signal a continuation lower and argue for fresh lows in this ETF. With last week's sharp decline, the index did establish a key resistance level at 9.54 to watch going forward. A move above 9.75 would provide a decisive breakout and call for a reassessment of the bigger downtrend. Chart 9 shows daily bars and the SCTR failing near 50 twice in the last four weeks. Note that COPX is a global ETF that consists of copper stocks from various countries including Canada, the UK, Australia, the US and China.
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Chart 8
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Chart 9
SILVER GETS THE SQUEEZE PLAY... Chart 10 shows the Silver ETF (SLV) moving below 20 in November and then consolidating the last two months. Bollinger Bands are overlaid in pink to highlight the recent volatility contraction. The indicator window shows the BandWidth indicator to quantify the distance between the upper band and the lower band. Note that this difference is divided by the middle band value, which is the 20-day SMA, to show it as a percentage of the middle band. BandWidth is currently around 5.21% and near the low end of its eight month range. The theory behind the Bollinger Band squeeze is that volatility contractions are often followed by volatility expansions. Bollinger Bands, however, do not provide any clues on the direction of the next move. Chartists must rely on other indicators and analysis techniques for direction. Overall, SLV remains in a long-term downtrend and is simply consolidating within that downtrend. A break below support at 18.5 would signal a continuation lower and target a move to new lows. I would mark resistance at 20 and consider a break above this level bullish. Chart 11 shows weekly bars over the last three years for a long-term reference.
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Chart 10
