SETTING FIRST SUPPORT FOR SPY BOUNCE -- TREASURIES SURGE ON TAME PPI -- GOLD REVERSES COURSE ON GEOPOLITICAL TENSIONS -- URANIUM ETF SURGES OFF SUPPORT -- CAMECO LEADS URANIUM ETF HIGHER -- AD LINE AND AD VOLUME LINE REVERSE SHORT-TERM DOWNTRENDS
SETTING FIRST SUPPORT FOR SPY BOUNCE... Link for today's video. Stocks opened strong and then sold off on reports suggesting an escalation of tensions in Ukraine - at least that was reasoning in the financial media. As of noon, the S&P 500 SPDR (SPY) was trading slightly lower and the long-term trend was still up. Chart 1 shows the S&P 500 SPDR (SPY) above the October trend line and well above the rising 200-day moving average. A short-term bullish signal triggered this week when StochRSI surged to 1. This setup-signal is a three-step process. First, the long-term trend is up. Second, the ETF becomes oversold as RSI dips below 40 (vertical red lines). Three, StochRSI signals a momentum up thrust with a move to 1 (green lines). The last three signals worked pretty well, but that does not guarantee the current signal will work. A strong breakout or signal should hold. This week's low marks first support at 192.5. Alternatively, chartists could employ the Chandelier Exit to set their stop-loss. The current Chandelier level, however, looks at bit tight though (194.2).
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Chart 1
TREASURIES SURGE ON TAME PPI... Treasuries are having a good week as a weak retail sales number and a tame Producer Price Index (PPI) increased expectations for a dovish Fed. The PPI increased .1% month-over-month in July and 1.7% year-over-year. The PPI was below expectations and this dampened inflation concerns. Chart 3 shows the 20+ YR T-Bond ETF (TLT) surging over 7% the last six weeks. The ETF broke out in early July and moved to new highs again this month. Broken resistance turns first support in the 112-113 area. The indicator window shows TLT outperforming SPY since early July. Note that TLT was up before the Ukraine-Russia reports hit the tape.
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Chart 2
GOLD REVERSES COURSE ON GEOPOLITICAL TENSIONS... Gold opened weak as inflation expectations eased, but recovered on reports concerning Ukraine. Chart 4 shows the Gold SPDR (GLD) moving below 124.5 in the morning and then recovering with a move back to the 126 area. If we ignore the spike below 125, then nothing has really changed on this chart. GLD broke out of the big wedge in mid June and this breakout held with the bounce off 123 in early August. The ETF broke out of the little wedge and the breakout line turns first support. At this point, I think a close below 124 would negate the little wedge breakout and increase the odds of a bigger break down. The red line shows the Chandelier Exit, which acts a trailing stop-loss. Traders going long on the mid June breakout and using this indicator to set stops would have been stopped out in mid July. Traders going long on the early August breakout would still be in with a stop-loss just below 124.21, which is the Chandelier Exit value. You can read more about this indicator in our ChartSchool.
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Chart 3
URANIUM ETF SURGES OFF SUPPORT... I first wrote about the Global X Uranium ETF (URA) on July 22nd as the ETF surged above first resistance. Chart 4 shows the ETF pulling back from this surge, holding above the May-June lows and surging back above 15 this week. The ability to hold above the May-June lows shows less selling pressure on the pullback. The surge over the last five days shows strong buying pressure. The indicator window shows URA relative to SPY. The ETF underperformed from March to June, but the price relative is slowly turning up as URA outperforms over the last six weeks.
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Chart 4
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Chart 5
Chart 5 shows weekly prices and a potential double bottom that would be confirmed with a resistance break. Notice how the ETF consolidated in the 14-15 area from October to December and again from May to July. A lot of shares exchanged hands during these consolidation periods and this suggest strong support in the 14-15 area. The indicator window shows MACD turning up the last few weeks and moving above its signal line. While URA certainly looks promising from a reward-to-risk standpoint, the danger of failure is always lurking because the long-term trend is still down. The advance over the last three months looks like a rising flag, which is potentially bearish. The bulls have an edge as long as the flag rises. A close below 14.30 would break the flag trend line and reverse this three month upswing.
CAMECO LEADS URANIUM ETF HIGHER... Chart 6 shows Cameco (CCJ) firming above its October low for a few months and surging back above 20 this week. With a 24+ percent weighting, this stock is by far the biggest component for the Global X Uranium ETF. Overall, a higher low could be taking shape and there is a ton of support in the 19 area. CCJ surged off this support zone again in August and I think the bulls have the edge as long as 19 holds.
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Chart 6
AD LINE AND AD VOLUME LINE REVERSE SHORT-TERM DOWNTRENDS... The key breadth indicators revived this week as the AD Line, AD Volume Line and High-Low Percent turned back up. Note that I am using breadth indicators based on the S&P 500, S&P MidCap 400 and S&P Small-Cap 600. Together, these three make up the S&P 1500, which is a great proxy for "the stock market". Chart 7 shows the S&P 1500 AD Line ($SUPADP) hitting a new high in early July and in a long-term uptrend. The indicator declined in July, firmed in early August and broke the early August peak with a surge this week. This move reversed the five week downtrend and signaled a resumption of the bigger uptrend. Chart 8 shows the S&P 1500 AD Volume Line ($SUPUDP) with similar characteristics.
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Chart 7
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Chart 8
HIGH-LOW PERCENT TURNS POSITIVE AGAIN... Chart 9 shows S&P 1500 High-Low Percent ($SUPHLP) in the middle window with the High-Low Line in the main window. First, notice that the High-Low Line has been above its 10-day EMA the whole year and the big trend is up for this indicator. Second, a correction was underway when High-Low Percent dips into negative territory. Third, the correction ended when High-Low Percent moved back above +2%, which it did on Tuesday. I have no idea when this signal/setup will stop working, but has worked before and should be considered bullish until proven otherwise. A dip back into negative territory would negate this signal.
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Chart 9
ECONOMIC AND EMPLOYMENT INDICATORS REMAIN STRONG... Chart 10 shows an table highlighting some key economic statistics for the month. The employment numbers remain positive with non-farm payrolls and ADP have increased by more than 200,000 the last two months. Non-farm payrolls have increased by more than 200,000 for six months straight. The ISM Manufacturing Index has been above 55 the last three months, while the ISM Services Index has been above 55 the last four months. Both are very strong. Retail sales barely grew in July and remains the soft spot. This could be due to heavy discounting in an extremely competitive environment. On the whole, I think the strong ISM numbers counter the anemic growth in retail sales. Chart 11 shows a screen shot of the economic symbols available at StockCharts.
Chart 10
