INDUSTRIALS, TECH AND DISCRETIONARY SECTORS HIT NEW HIGHS -- SHANGHAI COMPOSITE HOLDS BREAKOUT -- BOVESPA CONFIRMS MAJOR BULLISH REVERSAL PATTERN -- YEN BREAKDOWN IS POSITIVE FOR NIKKEI 225 -- JO PULLS BACK AFTER BIG SURGE

INDUSTRIALS, TECH AND DISCRETIONARY SECTORS HIT NEW HIGHS... Link for today's video. Stocks were broadly higher around midday on Monday with several major index ETFs hitting new highs. The Dow Diamonds, Nasdaq 100 ETF, S&P 500 SPDR and Equal-Weight S&P 500 ETF hit new highs. The Russell 2000 iShares and S&P MidCap SPDR were up as well, but these two remain short of their summer highs. Among the sector SPDRs, the Consumer Discretionary SPDR, Technology SPDR, Finance SPDR and HealthCare SPDR hit fresh 52-week highs today.

I am impressed to see three of the four offensive sectors hitting new highs. Note that the finance, technology, consumer discretionary and industrials sectors are the offensive sectors because they perform best when the economy is healthy. Chart 1 shows the Finance SPDR (XLF) surging over 1% as money moves into this key sector in a big way. Chart 2 shows the Technology SPDR (XLK) moving above 40 and hitting a new high. The February trend line and July-August lows mark first supports. Chart 3 shows the Consumer Discretionary SPDR (XLY) breaking out the second week of August and hitting a new high today. Things can't be too bad when these three sectors are trading at new highs. In fact, the overbought conditions are the only potential negatives. However, keep in mind that this is a short-term negative and it takes strong buying pressure to generate overbought conditions. In other words, it is a good problem for the bulls.

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Chart 1

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Chart 2

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Chart 3

SHANGHAI COMPOSITE HOLDS BREAKOUT... The Shanghai Composite ($SSEC) broke its first resistance zone with a surge in July and is now challenging the September-November highs. A break above these highs would forge a 52-week high and suggest that a long-term uptrend is starting. Chart 4 shows the index bouncing off support in the 1950-2000 area from December 2012 to June 2014. A small triangle formed this year and the index broke out with a sharp surge to 2200 in July. The gains continued over the last three weeks as the index approached the second resistance zone. Those who saw Bruce Fraser at ChartCon surely recognize this as a Wyckoff-type base that suggests accumulation over the past year or so. A breakout would complete the base and suggest we are entering the markup stage. Chart 5 shows daily candlesticks for more granularity.

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Chart 4

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Chart 5

BOVESPA CONFIRMS MAJOR BULLISH REVERSAL PATTERN... In addition to strength in China, we are also seeing strength in Brazil and India. Strength in these three countries could make up for weakness we are seeing in Europe. Chart 6 shows the Bovespa ($BVSP) forming a big double bottom from July 2013 to March 2014 and breaking resistance with a surge in July-August. This breakout confirms the double bottom and reverses the downtrend that was in place since November 2010. Separately, note that the Argentina MerVal Index (MERV) also hit a new 52-week high this month.

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Chart 6

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Chart 7

Chart 7 shows the Bombay Sensex 30 Index ($BSE) within a clear uptrend over the last three years. The trend started slowly in 2012 and 2013, but then accelerated a year ago as the index surged some 50%. The index may be overbought and ripe for a pullback, but it is by no means weak. The indicator window shows performance relative to the S&P 500. This price relative broke out in May and the Bombay Sensex has been outperforming in 2014.

YEN BREAKDOWN IS POSITIVE FOR NIKKEI 225 ... Chart 8 shows the Yen Index ($XJY) breaking consolidation support with a sharp decline last week. The Yen Index was quite flat from February to July as a tightening consolidation unfolded. After narrowing even further the last four months, the index broke down to signal a continuation of the long-term downtrend. This argues for new lows and should benefit Japanese stocks, especially the exporters. Chartists can mark resistance at 99, a break of which would argue for a reassessment.

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Chart 8

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Chart 9

Chart 9 shows the Nikkei 225 ($NIKK) breaking wedge resistance with a surge above 15000 in July and holding this breakout with a successful test in August. The trend line extending up from June 2013 and the August low combine to mark key support in the 14500 area. As long as the Yen break down holds and the Nikkei holds above support, I think the trend is up and expect a move to new highs.

JO PULLS BACK AFTER BIG SURGE... The Coffee ETN (JO) is showing strength with a breakout and big surge on the weekly chart. Chart 10 shows JO doubling with a surge from early December to mid April. Notice how the ETN then fell back with a falling wedge that retraced 50-62% of the prior surge. This is the retracement amount one would expect for a correction within a bigger uptrend.

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Chart 10

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Chart 11

Chart 11 shows daily prices for more detail. JO broke out with another big move in late July and then pulled back in early August. The ETN consolidated with a tight range the last few weeks and I am watching for a breakout at 37. Such a move would signal a continuation of the bigger uptrends and argue for a move above this year's high.