NASDAQ 100 ETF STAYS OVERBOUGHT AND BULLISH -- INTERNET ETF, GOOGLE AND FACEBOOK LEAD -- STEEL ETF BREAKS ABOVE TRIANGLE RESISTANCE -- CHINA HOLDS THE KEY TO INTERNATIONAL STEEL STOCKS -- SHANGHAI COMPOSITE TESTS KEY LEVEL
NASDAQ 100 ETF STAYS OVERBOUGHT AND BULLISH... Link for today's video. Chart 1 shows the Nasdaq 100 ETF (QQQ) leading the market with a modest gain and a new high on Tuesday. Yes, the overbought simply become even more overbought. QQQ broke resistance in the 90-91 area and this area turns into the first support zone to watch on a throwback. The indicator window shows the Commodity Channel Index (CCI) with green support zones (0 to -50) and red resistance zones (0 to +50). A move above +50 is considered bullish for momentum and this signal remains in play until countered with a move below -50. Instead of using zero line crossovers for signals, I added a 50-point buffer to reduce whipsaws. The system is not perfect, but it can keep traders on the right side of a move. Notice how CCI became overbought above +100 in mid May and then very overbought above +200 in late May. These overbought readings did not stop the advance as QQQ moved to new highs again and again. CCI is again above +100, but I would consider momentum bullish as long as this indicator holds above -50.
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Chart 1
INTERNET ETF, GOOGLE AND FACEBOOK LEAD ... Chart 2 shows the Internet ETF (FDN) leading the market higher today with a 1% gain in the late morning. Overall, FDN based in the 52-54 area and broke out with a move above 57 in late May. Note that I featured FDN and this basing pattern in the Market Message on May 19th. This Market Message also featured four other tech ETFs with similar setups (IBB, XSD, IGV and IGN). Returning to the FDN chart, the immediate trend is up with first support marked at 57. The mid May trend line and mid June lows combine to mark support here. The indicator window shows the price relative (FDN:SPY ratio) turning up the last six weeks as FDN starts to outperform the broader market.
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Chart 2
Chart 3 shows Facebook (FB) breaking triangle resistance in late May and moving above 66 today. The June lows mark a support zone in the 62-63 area. Chart 4 shows Google (GOOGL) finding support near the rising 200-day and breaking out in late May. The stock formed a small falling wedge in June and broke resistance with a surge the last three days.
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Chart 3
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Chart 4
STEEL ETF BREAKS ABOVE TRIANGLE RESISTANCE... Chart 5 shows the Steel ETF (SLX) bouncing off support in the 45.5-46 area and challenging resistance in the 47.5-48 area. Overall, the ETF broke wedge resistance with a surge in late March and then formed a long triangle. SLX is showing resilience as it holds the rising 200-day moving average and bounces off the April-May lows. The ETF even broke the upper trend line of the triangle and this is the first sign that the bigger uptrend is continuing. Chartists can now mark key support at 45.5, a break of which would be bearish. The indicator window shows SLX relative to the S&P 500 SPDR using the price relative (SLX:SPY ratio). SLX has underperformed since early November and a break above the May high is needed to signal a return to relative strength.
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Chart 5
CHINA HOLDS THE KEY TO INTERNATIONAL STEEL STOCKS... Chart 6 shows weekly prices with SLX consolidating between 36 and 50 since May 2012. Though not picture perfect, an inverse head-and-shoulders pattern could be taking shape with neckline resistance in the 50 area. The falling wedge from January to March marks the right shoulder and the ETF broke wedge resistance in late March. This breakout is largely holding and a move above neckline resistance would complete the reversal. The indicator window shows the 20-week Correlation Coefficient ($SSEC,SLX). Notice that SLX was positively correlated with the Shanghai Composite ($SSEC) for most of the last three years. In fact, the Correlation Coefficient was positive for at least 32 of the last 36 months. This suggests that continued strength in the Steel ETF is dependent on strength in the Shanghai Composite.
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Chart 6
SHANGHAI COMPOSITE TESTS KEY LEVEL... Chart 7 shows the Shanghai Composite ($SSEC) testing the 2000 area again. Overall, the index remains in a downtrend with a series of lower highs since the 25.4 percent surge above 2400. Except for a brief spike below 1900 in June 2013, the index has held support in the 1950-2000 area since late 2012. Another move below 1950 would break support and signal a continuation of the bigger downtrend.
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Chart 7
Honing in on 2014, notice that a triangle is taking shape the last five months. This triangle provides tighter support and resistance levels to watch for earlier signals. A break below 1980 would be bearish, while a break above 2100 would be medium-term bullish. Further up, look for a break above long-term resistance at 2200 to fully reverse the downtrend.
NUCOR, RELIANT AND STEEL DYNAMICS... The Steel ETF contains mostly international stocks with the top ten stocks accounting for around 70% of the ETF. Nucor (NUE) and Reliance (RS) are the only two US stocks in the top ten. Chart 8 shows Nucor gapping down and forming a lower high last week. The decline since mid May looks like a falling wedge, but the immediate trend is clearly down and the gap dominates. A move above 52 is needed to fill the gap and break trend line resistance. Short-term, notice that a pair of hammers may be forming as the stock firms immediately after the gap. Interesting...
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Chart 8
Chart 9 shows Reliance Steel& Aluminum with a different picture. The stock has been working its way higher since late February with a series of rising peaks and rising troughs. This is perhaps because Reliance is more diversified than other steel companies. Aluminum stocks have been strong all year with Alcoa (AA) hitting new highs this month.
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Chart 9
Chart 10 shows Steel Dynamics (STLD) with an interesting chart setup over the last few weeks. The stock surged from mid March to mid April and then formed a falling wedge from mid April to mid June. The wedge overshot the 62% retracement, but managed to hold well above the March low. STLD broke wedge resistance with a big surge on good volume last week. There was a pullback the last few days, but the breakout is holding so far. I would consider this chart bullish as long as 17.5 holds on a closing basis.
