HEALTHCARE SPDR BOUNCES OFF TREND LINE ZONE -- PFIZER, GILEAD AND ABBVIE LOOK TO EXTEND UPTRENDS -- SHANGHAI COMPOSITE BOUNCES OFF LONG-TERM SUPPORT -- GOLD SPDR CHALLENGES UPPER BOLLINGER BAND -- SILVER CONSOLIDATES WITHIN DOWNTREND

HEALTHCARE SPDR BOUNCES OFF TREND LINE ZONE... Link for today's video. The HealthCare SPDR (XLV) has been one of the strongest sectors in the stock market this year, and shows no signs of letting up. Chart 1 shows the XLV hitting a new high in mid January, pulling back with a falling wedge and breaking wedge resistance with a surge the last two days. The "trend line zone" zone extending up from the late June low and the December breakout mark support in the 54.5-55 area (see overlap). Today's video includes a live demonstration for drawing trend line zones. The indicator window shows the StockCharts Technical Rank (SCTR) moving above 80 at the beginning of January and remaining above this level. This means XLV is in the top 20% of ETFs over the last four weeks.

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Chart 1

PFIZER, GILEAD AND ABBVIE LOOK TO EXTEND UPTRENDS... The next three names are part of the HealthCare SPDR and show corrective patterns within overall uptrends. Chart 2 shows Pfizer (PFE) breaking out with a big surge in October and falling back to the resistance zone in December-January. The stock ultimately formed a falling wedge and broke above wedge resistance with a surge the last two weeks. Chart 3 shows Gilead Sciences (GILD) within a strong uptrend over the last twelve months. The stock pulled back with a flag the last few weeks and found support near broken resistance. Chart 4 shows AbbVie (ABBV) finding support near broken resistance and the March trend line. The stock tested this area twice and then broke out with a surge above the December trend line today.

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Chart 2

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Chart 3

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Chart 4

SHANGHAI COMPOSITE BOUNCES OFF LONG-TERM SUPPORT... After closing for the Lunar New Year last week, the Shanghai Composite ($SSEC) returned to trading on Friday with a small gain and continued higher on Monday with a 2% surge. This move could be significant because the index is bouncing off long-term support and China is the biggest emerging market. Chart 5 shows weekly bars over the last three years. Notice how the index bounced off the 2000 area in late 2012 and in the summer of 2013. The Shanghai Composite tested this area with the decline in early January and then bounced back towards 2100 this week. Note that the index closed at 2086 on Monday. Long-term, chartists can mark resistance at 2300. The indicator window shows the index underperforming the S&P 500 over the last three years. A convincing price breakout would need to be accompanied by breakout in the price relative ($SSEC:$SPX ratio).

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Chart 5

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Chart 6

Turning to chart 6, we can see the potential for an ABC correction over the last four months. This suggests that the surge from 1850 to 2275 marks Wave 1 and the decline to 2000 marks Wave 2, which is corrective. If this count is correct, a Wave 3 up may be about to unfold. Short-term, the index bounced off the 62% retracement with a surge above 2050 in mid January and then pulled back with a falling flag, which is a bullish continuation pattern. Today's 2% surge broke flag resistance to signal a continuation higher. Chart 7 shows the China iShares (FXI) firming at the 62% retracement. The trend since early December is down and a break above the late January high is needed for a reversal here.

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Chart 7

GOLD SPDR CHALLENGES UPPER BOLLINGER BAND ... My colleague Greg Schnell posted some timely analysis for the Gold Miners ETF, gold and silver in the Candadia Technician Blog over the weekend. Following up on this theme, gold and silver are indeed at some interesting junctures. Chart 8 shows Spot Gold ($GOLD) hitting resistance in the 1250-1280 zone. The trend line zone and broken supports combine to mark resistance here. Gold held up quite well last week and has been a top performer in 2014. A breakout at 1280 would be bullish here and argue for further strength with next resistance marked in the 1350 area. For the moment, keep in mind that gold is in a long-term downtrend and even a breakout at 1280 would not reverse this downtrend. So while we may get an extension of this seven week advance, it is still too early to consider a long-term trend reversal.

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Chart 8

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Chart 9

Chart 9 shows daily bars for the Gold SPDR over the last eight months. Notice that the Bollinger Bands narrowed significantly and BandWidth moved to its lowest level in over eight months. GLD is following the Silver ETF (SLV), which was highlighted with a Bollinger Band contraction in the Market Message on January 276h. This BandWidth contraction tells us that volatility is low and trading has turned downright boring over the last few weeks. Bollinger theorized that a volatility contraction is often followed by a volatility expansion. GLD is in a seven week uptrend and challenging the late January highs, as well as the upper Bollinger Band. A breakout here would argue for an extension of this short-term uptrend. The trend line zone and mid January lows combine to mark a support zone in the 119-120 area. A break here would end the short-term uptrend and signal a continuation of the long-term downtrend.

SILVER CONSOLIDATES WITHIN DOWNTREND... Chart 10 shows weekly Spot Silver ($SILVER) consolidating near its summer lows. At this point, it is just a consolidation within a downtrend, which favors a bearish resolution. A support break would signal a continuation lower and target a move to the mid teens. The October 2012 trend line, broken support and the consolidation highs mark resistance in the 20-21 area. Look for a breakout here to spark a rally. Chart 11 shows the Silver ETF within a Bollinger Band contraction over the last three months.

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Chart 10

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Chart 11

PALLADIUM BOUNCES OFF MAJOR SUPPORT ZONE... The Palladium ETF (PALL) took a pretty big hit in late January, but found support near the September-December lows and bounced with a move above 69 last week. In fact, chart 12 shows a lot of support in this zone and we could see another challenge to resistance over the next few weeks. Palladium is, of course, a key component for catalytic converters and demand from the auto industry accounts for over half the supply. As shown on Friday, US auto sales moved back above the 15 million mark in December 2012 and have remained above this level the last 13 months. Chart 13 shows weekly prices and puts this consolidation into perspective. A breakout at 75 would signal a continuation of the prior advance (55 to 77.5) and open the door to the mid 80s.

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Chart 12

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Chart 13

BRENT AND GASOLINE ETFS BREAK OUT... Spot Light Crude moved back to the $100 area and broke its 200-day moving average, which Greg highlighted on Thursday. We are also seeing big moves in the US Brent Oil ETF (BNO) and the US Gasoline ETF ($UGA). Chart 14 shows BNO bouncing off the rising 200-day moving average and breaking above its late January highs. Brent oil is sourced in the North Sea and its price is used as a benchmark in Europe.

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Chart 14

Chart 15 shows UGA surging in November-December and pulling back rather hard in January. Despite this sharp pullback, the ETF managed to firm near the 62% retracement and surge above the late January highs. A breakout is in the works here with the summer highs marking the next resistance zone.

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Chart 15

XLE REMAINS AN UNDERPERFORMER... With Spot Light Crude near 100 and Brent breaking out, one would expect a little more strength in energy-related stocks, but this group continues to lag. Chart 16 shows the Energy SPDR (XLE) breaking the August trend line in mid January and continuing below support from the November-December lows. Broken support now turns into resistance. The trend line zone extending down from the January high combines to mark resistance just above 85. The indicator window shows the StockCharts Technical Rank (SCTR) breaking below 50 on January 10th and remaining below this level the last four weeks. XLE is one of the weakest sectors in the stock market right now.

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Chart 16

XOP HOLDS UP BETTER THAN XES... Chart 17 shows the Oil & Gas Equip & Services SPDR (XES) peaking in November and breaking down in early December. While the S&P 500 hit a new high at yearend, XES remained well below its November high and showed relative weakness. The ETF went on to break support in the 41.5-42 area and broken support here turns into resistance, which is confirmed by the November trend line. The indicator window shows the **StockCharts Technical Rank (SCTR) breaking down in mid December** and moving below 30 this year.

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Chart 17

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Chart 18

Chart 18 shows the Oil & Gas E&P SPDR (XOP) holding up the best of the three energy-related ETFs. Notice how XOP broke support at 64 intraday last week, but managed to bounce back and keep this support zone alive. XES and XLE, on the other hand, are trading below their mid December lows. Even though XOP is holding up better, it still remains in a downtrend overall. A surge above last week's high at 66 would be the first positive sign. Look for a break above the trend line zone (68.5) to fully reverse the three-to-four month downtrend.