HOME CONSTRUCTION ISHARES MAKES A BREAK -- SHANGHAI COMP SURGES TO NEW HIGH -- CHINA AND JAPAN SHOW RELATIVE STRENGTH -- CHINA INDUSTRIALS LEADS ETF GROUP -- CHINA CONSUMER ETF FIRMS AT KEY LEVEL -- COPPER HITS SUPPORT ZONE AGAIN

HOME CONSTRUCTION ISHARES MAKES A BREAK... Link for today's video. Chart 1 shows the Home Construction iShares (ITB) reversing an eight month downtrend with a surge above its August-September highs. This is the first higher high of 2014. Notice that this is a weekly chart extending back two years. ITB hit a new high in February and held above its prior low in October. This breakout, therefore, signals a continuation of a bigger uptrend and a challenge to the prior highs is expected.

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Chart 1

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Chart 2

Chart 2 shows the ETF surging in mid October and then consolidating for a few weeks. The breakout ends the consolidation and signals a continuation of the October surge. Chartists can mark first support in the 23.5-23.75 area. The indicator window shows the price relative (ITB:SPY ratio) breaking the July trend line in mid October, falling back in late October and turning back up the last few days.

SHANGHAI COMP SURGES TO NEW HIGH ... The Shanghai Composite ($SSEC) continued uptrend with a two plus percent surge on Monday. Chart 3 shows the index closing at 2474, which is its highest level since March 2012. At this point, the index exceeded its 2013 high and recorded a 30-month high. The September-October lows mark support in the 2250-2300. The indicator window shows the $SSEC:$SPX ratio turning up in mid July, breaking a long trend line in late July and moving higher the last few months.

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Chart 3

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Chart 4

Chart 4 shows the China iShares (FXI) breaking out in July and hitting a new high in September. The ETF fell back later that month, but bounced in October and the overall trend remains up. I am not calling this a failed breakout because the ETF was entitled to a pullback after a 30+ percent advance. I think the new high is bullish and will use the September low to mark support.

CHINA AND JAPAN SHOW RELATIVE STRENGTH... Chart 5 shows a Relative Rotation Graph (RRG) with the Shanghai Composite, Nikkei 225 and S&P 500 leading the world over the last two months. Each dot on the green line is one week and these lines extend for ten weeks. The $SSEC line crossed into the leading quadrant in the beginning of September and $NIKK has been in this quadrant the last ten weeks. Notice that the Nikkei 225 was showing relative strength before it surged in late October.

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Chart 5

CHINA INDUSTRIALS LEADS ETF GROUP... Global X has a group of ETFs that focus on specific sectors or industry groups in China. The Relative Rotation Graph below shows the performance for these six ETFs relative to the China iShares (FXI). I am using FXI as the benchmark because it is priced in Dollars, just like the other ETFs. The Shanghai Composite, in contrast, is based on the local currency (Yuan) and should not be used for the benchmark. Julius de Kempenaer discussed the currency affect in a post on his RRG blog. The chart below shows the China Industrials ETF (CHII) leading this group because its RRG line moved into the leading quadrant over the last few weeks. Chart 7 shows CHII challenging a resistance zone that extends back to 2012. Note that these ETFs do not trade a lot of volume and due diligence is required before trading or investing in these.

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Chart 6

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Chart 7

CHINA CONSUMER ETF FIRMS AT KEY LEVEL... The China Consumer ETF (CHIQ) stood out on the Relative Rotation Graph because its RRG line moved into the improving quadrant. The line is still far from the leading quadrant, but the price chart is getting interesting because the ETF is consolidating near support. Chart 8 shows the ETF falling to support in the 13-13.75 area and then firming the last six weeks. A small consolidation has taken shape and chartists should watch the consolidation boundaries for the next directional clue. A break above 14 would suggest a successful support test and be bullish. A break below the October low, on the other hand, would signal a continuation of the September decline and this would be bearish.

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Chart 8

COPPER HITS SUPPORT ZONE AGAIN... Copper is in a long-term downtrend, but hitting a large support zone and showing some firmness. Even though it is too early to turn bullish, I am watching the October highs for a breakout that would be positive. Chart 9 shows Spot Copper ($COPPER) peaking around 4.6 in early 2011 and then falling below 3 in March 2014. Despite a new low this year, evidence for support in the 2.8-3 area extends back to the 2010 lows. The indicator window shows the Stochastic Oscillator becoming oversold in late September and then moving above 20 in October. Momentum is improving as long as the Stochastic Oscillator remains above its signal line (red line). The green dotted lines show prior Stochastic signals over the last five years.

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Chart 9

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Chart 10

Chart 10 shows December Copper (^HGZ14) firming in the 3 area since early October. Notice that copper bounced with the stock market in mid October and then pulled back the last two weeks. A hammer formed three days ago to reinforce support. At this point, the consolidation over the last four weeks simply means buying pressure and selling pressure have equalized. We have yet to see buying pressure take over and I am waiting for a decisive break above the red resistance zone (3.125) to turn bullish on copper. The indicator window shows the Copper ETN (JJC) with resistance marked at 38.