QQQ REMAINS THE LONE HOLD OUT -- IGN AND XSD HOLD SUPPORT BREAKS -- MARKETVECTORS RETAIL ETF BREAKS DOWN, BUT XRT HOLDS FIRM -- MEDIA AND LEISURE ETFS WEIGH ON CONSUMER DISCRETIONARY -- GOLD IGNORES DOLLAR WITH SURGE ABOVE 1300
QQQ REMAINS THE LONE HOLD OUT... Link for today's video. The Russell 2000 iShares (IWM) peaked in early July and fell the last five weeks. The S&P 500 SPDR (SPY) held out, but succumbed to selling pressure in late July and broke first support. The Nasdaq 100 ETF (QQQ) remains the lone hold out among the major index ETFs. Keep in mind that I am talking about short-term support breaks, not long-term support breaks or major trend reversals. Chart 1 shows QQQ gapping down in late July and testing support in the 94 area over the last five days. A break would put QQQ in with the rest of the break down and this would be quite negative for the stock market overall.
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Chart 1
The indicator window shows the Commodity Channel Index (CCI) turning bearish with a move below -50 in late July. The horizontal lines and yellow mark a zone from -50 to +50. In general, a break above +50 is bullish for momentum, while a break below -50 is bearish. I am not using a cross above/below the zero line because this results in too many whipsaws. As the chart now stands, QQQ remains in a short-term downtrend and in corrective mode as long as CCI remains below +50. Look for a surge above this level to turn momentum bullish again. Chart 2 shows the Nasdaq 100 Equal-Weight ETF (QQEW) with similar characteristics.
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Chart 2
IGN AND XSD HOLD SUPPORT BREAKS... In addition to biotechs and software, chartists can watch internet, semiconductor and networking stocks for clues on the technology sector and the Nasdaq 100. Today I will focus on the latter three industry group ETFs. I featured the Internet ETF (FDN) on Tuesday as it consolidates within a triangle. Chart 3 shows that consolidation continuing as the Bollinger Bands contract. Watch 61 up and 58 down for the next signal that could influence the tech sector
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Chart 3
In addition to FDN, I am also watching the Networking iShares (IGN) and the Semiconductor SPDR (XSD) because both broke short-term support levels and these breaks are holding. Even though the long-term trends are still up, a correction remains in force as long as these breaks hold. Chart 4 shows XSD breaking support with a sharp decline in late July. This support break is short-term bearish and it is holding. With the decline to 70, the ETF retraced 62% of the prior advance and this Fibonacci retracement level could foreshadow a reversal area. However, we have yet to see an upside catalyst that would suggest the correction is ending. First resistance for XSD is marked at 72 and a breakout here would be short-term bullish. The indicator window shows StochRSI, which is the Stochastic Oscillator applied to RSI. This indicator fluctuates between 0 and 1. A surge to 1 would signal a momentum up thrust or RSI breakout that could be used as the bullish catalyst.
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Chart 4
Chart 5 shows the Networking iShares breaking the May trend line in early July and support in late July. The late July support break is holding as broken support turned into resistance. Notice how the ETF opened strong and closed weak to affirm support on Thursday. A move back above 34.3 is needed to negate this support break. The indicator window shows StochRSI remaining subdued the last five weeks. A surge to 1 would signal a bullish momentum up thrust.
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Chart 5
MARKETVECTORS RETAIL ETF BREAKS DOWN, BUT XRT HOLDS FIRM... The consumer discretionary sector has also struggled lately with a four percent decline from the July high. Homebuilders, retailers, media and leisure stocks contributed to this decline. I featured the MarketVectors Retail ETF (RTH) and the Retail SPDR (XRT) last week. Chart 6 shows RTH breaking support and the 200-day moving average as Amazon and Wal-mart weighed in late July. Chart 7 shows the broader XRT holding near a support zone and failing to get an upside catalyst with a break above 85.60. A correction remains in force until we get a breakout.
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Chart 6
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Chart 7
MEDIA AND LEISURE ETFS WEIGH ON CONSUMER DISCRETIONARY ... Even though the Media ETF (PBS) and Leisure and Entertainment ETF (PEJ) are not that actively traded, they offer insight into the consumer discretionary sector. I went to the PowerShares website to download the component lists for each ETF. Notice that the top ten holdings for each ETF come from the consumer discretionary sector. Media makes sense because this industry is dependent on ad dollars. The leisure industry makes sense because leisure is a discretionary product or service. Chart 8 shows the Media ETF forming a lower high in July and breaking support with a sharp decline this week. Even though the ETF overshot the 62% retracement, the July peaks were close enough and fell well short of the March high. This break down looks like a continuation of the March-April decline and the May lows mark the next target. Chart 9 shows the Leisure and Entertainment ETF with similar characteristics.
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Chart 8
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Chart 9
GOLD IGNORES DOLLAR WITH SURGE ABOVE 1300 ... Gold remains within a large consolidation on the weekly chart, but the yellow metal is making some bullish waves with a surge on the daily chart. Chart 10 shows weekly Spot Gold ($GOLD) crossing the 1300 level at least a dozen times since June 2012 (pink line). Overall, I still view this is a consolidation within a downtrend, and a consolidation within a trend is typically a continuation pattern. This means the consolidation is a bearish continuation pattern. Also note that it is possible that a bearish descending triangle is taking shape. The lower highs show selling pressure coming in at lower price points. The equal lows represent the demand line. A break below support would break demand and signal a continuation lower. I am marking long-term resistance in the 1350 area and would turn bullish on a close above 1360.
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Chart 10
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Chart 11
Shorter term, gold is at an interesting juncture because of a big wedge little wedge situation. Erin Heim featured this wedge breakout in the DecisionPoint blog on Thursday and I echo her bullish sentiments. Chart 11 shows gold breaking out of the big wedge and then pulling back with a smaller wedge in July. This pullback retraced 62% of the prior advance with a move to 1280. Both the retracement amount and pattern are typical for corrections, which means the breakout signals a continuation of the prior advance. The breakout is bullish until proven otherwise and chartists can mark support at 1280, a break of which would totally negate this bullish assessment.
STRONG DOLLAR MAY ULTIMATELY TRUMP ... Fundamentally, gold may be breaking out because the situation with Russia is deteriorating. Note that gold surged even as the Dollar advanced this week. While I do not expect Putin to back down, the situation could turn into a long drawn out affair and the Dollar may be the ultimate arbiter for gold. Chart 12 shows the Euro Index ($XEU) in a clear downtrend and the Dollar Index ($USD) in an uptrend. The Euro is around 57% of the Dollar Index and the key currency cross to watch. As the weekly gold chart showed, there is a strong negative correlation between gold and the Dollar. Continued Dollar strength and Euro weakness, therefore, could ultimately be negative for gold. Because it is rather unusual to see both gold and the Dollar advance, further strength in both would signal that something is amiss in the world and I would view this as negative for stocks.
