SMALL-CAPS REFUSE TO BUCKLE -- REGIONAL BANK SPDR STALLS -- BIOTECH ETFS BREAK TO NEW HIGHS -- SEMICONDUCTOR SPDR HOLDS SHORT-TERM BREAK -- 20+ YR T-BOND ETF EDGES TOWARDS BREAKOUT -- SHANGHAI COMPOSITE HITS ANOTHER MILESTONE

SMALL-CAPS REFUSE TO BUCKLE... Programming Note: There is no video today because I am working on the road. Also note that I will be taking the rest of the week off to be with family and friends. I will post a Market Message and video next Monday, December 1st. In the meantime, have a happy and safe Thanksgiving week!

If you do not like the way small-caps are acting, simply wait a day and performance will change - just like the weather. Chart 1 shows small-caps getting hit hard as the Russell 2000 iShares (IWM) fell last Wednesday with a long black candlestick and dip below 115. This decline was immediately erased with a long white candlestick the very next day. IWM opened strong on Friday, but came under pressure and closed near its low of the day to form a long black candlestick. Once again, the long black candlestick was negated with a surge and long white candlestick on Monday. The day-to-day candlestick action can be volatile, but I think the November pattern is simply a consolidation after a sharp advance. Despite relative weakness, small-caps remain resilient and we have yet to see a break down on the price chart. IWM surged from 104 to 118 and then stalled in the 114.5-118 area the last four weeks. The trend line break is holding and the ETF established support with last week's low. I would give the bulls the benefit of the doubt as long as the ETF holds 114 on a closing basis. Chart 2 shows the S&P SmallCap iShares (IJR) with similar characteristics.

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Chart 1

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Chart 2

REGIONAL BANK SPDR STALLS ... The Regional Bank SPDR (KRE) is in the midst of a nice upswing since mid October, but the ETF is hitting resistance from the July-September highs and turning volatile in November. Regional banks are important for small-cap performance because the finance sector is the largest sector (25% weighting) in the Russell 2000 iShares. Chart 3 shows KRE with six price swings over the last eight months. Despite several swings this year, the ETF is pretty much right where it started the year (around 40). I have shown the Commodity Channel Index (CCI) strategy before and will continue to use it as long as it works for these price swings. The last signal was bullish on 21-Oct when CCI moved above zero and will remain bullish as long as CCI is positive. With CCI at 2.33 and KRE bouncing off support today, we are at a moment-of-truth. Support in the 39.5 area stems from the November lows and KRE broke a seven day trend line with the move above 40 today (provided it holds). I am currently bullish on KRE, but would turn bearish should prices break below 39.5 and should CCI cross into negative territory. Chart 4 shows the Bank SPDR (KBE) with similar characteristics.

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Chart 3

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Chart 4

BIOTECH ETF'S BREAK TO NEW HIGHS... The Biotech ETFs have been some of the top performing ETFs this year and show no signs of slowing down. Chart 5 shows the Biotech SPDR (XBI) surging to a new high in late October and consolidating with a pennant in November. The ETF broke above pennant resistance with a move over the last three days and this signals a continuation higher. Even though the blue dotted lines show a rising channel and the ETF is near the upper trend line, I would not view this as "hard" resistance. The pennant breakout rules the roost right now and chartists can mark first support in the 165 area. Chart 6 shows the Biotech iShares (IBB) breaking out as well and I am marking key support at 285.

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Chart 5

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Chart 6

SEMICONDUCTOR SPDR HOLDS SHORT-TERM BREAK... Chart 7 shows the Semiconductor SPDR (XSD) surging back above its October support break and then consolidating with a flag in November. With a gap and surge the last two days, the ETF broke flag resistance to signal a continuation higher. Even though XSD is still lagging the broader market over the last few months, this flag breakout is bullish and targets a move to the next resistance zone around 78. The flag lows become support in the 71 area and this is the first level to watch for a break down. A resurgence in semiconductor stocks is positive for the Nasdaq and tech sector. Chart 8 shows Maxim Integrated Products (MXIM) with a flag-wedge over the last few weeks and resistance at 29.5. Chart 9 shows Silicon Labs (SLAB) with a surge and breakout in October, and a bull flag in November. A breakout at 46 would be bullish.

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Chart 7

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Chart 8

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Chart 9

20+ YR T-BOND ETF EDGES TOWARDS BREAKOUT... Even though it seems counter intuitive, Treasury bonds are strengthening even as the S&P 500 trades at all time highs. Treasury bonds represent the safe-haven trade, but they also benefit from weakness in oil (disinflation) and strength in the Dollar. John Murphy noted last week that a strong Dollar was keeping inflation in check and holding yields down. Chart 10 shows TLT consolidating the last four weeks with a tight range. The Bollinger Bands narrowed and BandWidth is at its narrowest of the year. In fact, BandWidth is the narrowest in several years and this is the tightest consolidation we have seen in a long time. With TLT making a move above 120 over the last two days, it looks like a breakout is in the making and the bigger uptrend is resuming. I think the bigger trend is up because TLT hit a new high in mid October and the ETF is bouncing off its prior breakout zone. Key support remains at 118 and a break below this level would be bearish. Chart 11 shows the 7-10 YR T-Bond ETF (IEF) with similar characteristics.

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Chart 10

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Chart 11

SHANGHAI COMPOSITE HITS ANOTHER MILESTONE... Stocks in Shanghai and Hong Kong got a big lift as the Chinese central bank cut interest rates and loosened lending restrictions on Friday. Chart 12 shows the Shanghai Composite ($SSEC) extending its uptrend with another 52-week high this week. There appears to be more behind this advance than just a surprise rate cut because the index has not looked back since the breakouts in July. The indicator window shows the China iShares (FXI) bouncing off a support zone to possibly continue the uptrend that began this spring. Note that the Shanghai Composite is a broad-based index of mainland stocks. FXI, on the other hand, is based on the FTSE China 50 Index, which features 50 of the largest stocks in China.

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Chart 12

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Chart 13

Chart 13 shows the Hang Seng Composite ($HSI) bouncing off a support zone again in November with a 2% surge on Monday. Notice that this index hit 52-week highs in the summer and is in a long-term uptrend. The September decline, while sharp, found support near broken resistance and the 50-62% retracement zone. Today's surge off support provides another sign that the long-term uptrend may be resuming. The indicator window shows the Hong Kong iShares (EWH) in an uptrend over the last nine months. The Hang Seng Index is heavily weighted towards the real estate, finance and insurance sectors.