THREE STYLES AND THREE DEGREES OF CORRECTION -- USING THE RAFF CHANNEL TO DEFINE A MOVE -- SOLAR ENERGY ETF TESTS TWO KEY MOVING AVERAGES -- SUNPOWER AND SOLAR CITY LEAD THE GROUP -- URANIUM ETF SURGES OFF SUPPORT -- CAMECO AND DENISON LEAD URANIUM STOCKS
THREE STYLES AND THREE DEGREES OF CORRECTION... Link for today's video. A style index or ETF is one that groups stocks by market cap. This is sometimes taken further by subdividing these groupings into value and growth components. For example, we have the S&P 500 (large-cap), the S&P MidCap 400 and the S&P Small-Cap 600. These three indices can be divided into their value and growth oriented components. Today I am going to look at the S&P 500 SPDR (SPY), S&P MidCap SPDR (MDY) and S&P SmallCap iShares (IJR) because these three show varying degrees of selling pressure in July. We can measure the depth of correction as a retracement of the prior advance (mid April to early July) and by the distance from the July high to the July low.
Chart 1 shows SPY holding up the best because it retraced less than 25% of the April-July advance and fell just 1.8% from the July high to the July low. This is not much of a correction. Notice that the ETF formed a pennant in July and a break above the upper trend line would signal a continuation higher. Chartists can watch support at 195 for the first signs of a deeper correction. A break below this level would argue for a pullback to the 188-190 area.
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Chart 1
Chart 2 shows MDY retracing just over 38.2% of the prior advance and falling 4.1% from the July high to the July low. This modest correction formed a falling wedge and chartists can watch last week's high for signs of a breakout. Chartists can also watch StockRSI for a surge above .80 to signal an up thrust in momentum.
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Chart 2
USING THE RAFF CHANNEL TO DEFINE A MOVE... Chart 3 shows IJR retracing around 61.8% of the prior advance and falling 6.1% from the July high to the July low. This is clearly the deepest pullback of the three. The ETF is firming in a support zone marked by the 50-62% retracement zone and broken resistance. The July decline is quite steep so I opted to use the Raff Regression Channel to define the correction. A move above 110 would exceed the upper line and signal an end to this correction. Falling flag/wedges also formed in XLI, RGI, XLE, RYE, XLV, RYH, XSD, IGE and XOP over the last few weeks. The more that break out, the more bullish for the market.
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Chart 3
SOLAR ENERGY ETF TESTS TWO KEY MOVING AVERAGES... Chart 4 shows the Solar Energy ETF (TAN) breaking wedge resistance in late May and then pulling back to two key moving averages in July. The red line is the rising 200-day moving average and the blue line is the 50-day moving average. Both are in the 40-42 area and this zone also marks support from broken resistance. The test is looking successful so far as TAN bounces off the support zone and moves above 42. Failure to hold this bounce and a close below 40 would be bearish.
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Chart 4
SUNPOWER AND SOLAR CITY LEAD THE GROUP... Chart 5 shows SunPower (SPWR) breaking neckline resistance and this broken resistance zone turned into first support in the 36 area. The post-breakout pullback is a "throwback" that tests the breakout zone. With a bounce the last two weeks, the breakout looks like it is holding and SunPower remains bullish overall.
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Chart 5
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Chart 6
Chart 6 shows Solar City (SCTY) getting a breakout in mid June, pulling back in early July and moving higher the last three days. The breakout occurred with a big move on high volume and this pullback has been relatively tame, which is bullish overall. Chartists can watch the July lows for the first signs of weakness. Note that SunPower and SolarCity are high-risk stocks and both report earnings within the next two weeks.
URANIUM ETF SURGES OFF SUPPORT... Chart 7 shows the Global X Uranium ETF (URA) holding support in the 14 area and surging above resistance. The ETF was hit pretty hard from early March to early May, but managed to firm the last two months and attract buying interest in July. This is especially noteworthy because the stock market has been mixed this month with large-caps flat and small-caps down. The indicator window shows the Commodity Channel Index (CCI) becoming more and more overbought this month. Notice how CCI reversed near the 100 level in late May, surged above 00 in early July and surged above 200 last week. This momentum progression is similar to what we saw from late October to late December. It takes strong buying pressure to produce overbought readings in momentum oscillators. These bullish signs suggest momentum pullbacks will be opportunities. Chart 8 shows weekly prices for a long-term perspective. Before knocking nuclear energy and uranium demand, consider that China has big energy needs going forward and nuclear energy could fill those needs.
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Chart 7
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Chart 8
CAMECO AND DENISON LEAD URANIUM STOCKS... There are not that many uranium plays in the US, or the world for that matter. Cameco (CCJ) is the biggest with a market-cap north of $8 billion. Denison Mines (DNN) is a low-priced stock with a market-cap south of $800 million. Keep in mind that low price equals high risk. Together, they account for around 35% of the Global X Uranium ETF and both report earnings in the next two weeks. Chart 9 shows Cameco breaking out with good volume last week. Broken resistance turns first support to watch on a possible throwback. The indicator window shows CCJ relative to SPY using the price relative (CCJ:SPY ratio). The price relative also broke first resistance at CCJ started showing relative strength in July. Chart 9 shows Denison Mines with similar characteristics.
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Chart 9
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Chart 10
ALUMINUM, GOLD AND SILVER... The next three charts cover a base metal, a precious metal and a hybrid metal. Aluminum is the base metal and gold is the precious metal. Silver is deemed the hybrid metal because it is semi-precious and industrial. Chart 11 shows the Aluminum ETN (JJU) breaking out and hitting a new high for 2014. This is one of the strongest industrial metals right now and strength here bodes well for aluminum stocks.
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Chart 11
Despite some global disruptions over the last few weeks, gold has not been able to break out and this could signal underlying weakness. In addition to ongoing tensions in Iraq and Syria, the markets had to deal with a passenger airliner being shot down and an invasion of the Gaza strip. Such news should be positive for gold, but gold did not react much and failed to breakout at 1350-1370. Chart 12 shows Spot Gold ($GOLD) with a possible descending triangle taking shape. A break below 1290 would trigger a medium-term reversal and target a support test in the 1180-1200 area.
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Chart 12
Chart 13 shows Bollinger Bands contracting for the Silver ETF (SLV). Note that silver surged along with gold in June and then moved into a trading range the last four weeks. SLV has traded between 19.75 and 20.75 since late June. I am marking support at 19.75 and chartists should watch this level for a break down. I will give silver the bullish benefit as long as this level holds.
